Chrysler Suicide Watch 16: Cerberus' Master Plan?

Robert Farago
by Robert Farago
chrysler suicide watch 16 cerberus master plan

So that's it: deal done. Yesterday, federal regulators cleared DaimlerChrysler's suffix sale to Cerberus Capital Management. In the absence of any immediate change to the status quo, the United Auto Workers (UAW) and the Canadian Auto Workers (CAW) couldn't be happier with their new overlords. Chrysler dealers have also met with the new bosses and sworn their fealty. So it's one big happy family, all pulling together for their mutual health and happiness. And if you believe that, I've got some Ford stock I'd like to sell.

If Chrysler were a healthy company with an economically viable work force, a solid product line and strong financials, Mercedes would have kept it. If Cerberus didn't make billions by transforming ailing companies into cash cows– or sending them to the slaughterhouse– they wouldn't have bought it. So what we have here is a moment of silence: a dignified pause before Cerberus grabs its finest filet knife and guts Chrysler like a fish.

To understand the fishmongery to come, it's important to see Chrysler through Cerberus' eyes. As far as CEO Stephen Feinberg and his Armani-clad mob are concerned, Chrysler doesn't make cars. It makes loans. Its cars, trucks, vans, minivans, SUVs and pickups are simply a means to an end: profitable paper. Chrysler Financial Services is the only part of Chrysler Group that makes any money. Cerberus already owns 51 percent of GM's financial services unit, GMAC. Join the dots. Do the math.

Despite Chrysler's CFO's pre-sale pooh-poohing of the possibilities, Feinberg dropped hints about "synergies" between Chrysler Financial and GMAC at the recent dealer pow-wow. Believe it. It's only a matter of time before Cerberus combines its two lenders to grab the lion's share of the auto loan market from Ford. Aside from the power that comes from being number one, former GMAC Prez Bill Lovejoy reckons the deal will generate tremendous efficiencies in finance and remarketing off-lease vehicles.

Of course, an auto finance company needs autos to finance. That's where the rest of Chrysler comes in– but not Chrysler as we know it.

Start with this: Cerberus is a deal maker, not a car maker; and they sure ain't no miracle maker. They know they can't get Chrysler's unions to agree to the kind of wage and benefit roll backs needed to create American-built cars that compete with non-union transplants– at least not without exercising the nuclear option. While long overdue, a showdown strike would kill the short term value of Cerberus' investment (which is their primary frame of reference).

So here's Cerberus' cunning plan: they're not even going to try. Oh, they'll ask for the same concession as Ford and GM (should there be any on offer). But Cerberus isn't counting on union malleability. They'll simply turn their back on their American unions, build or buy cars elsewhere and transform Chrysler dealers into the automotive equivalent of Wal-Mart. In other words, Cerberus will decouple the traditional link between automotive manufacture and retail.

It's a bold strategy: gut Chrysler to save Chrysler. The fact that GM CEO Rick Wagoner has already expressed interest in a combined Chrysler Financial and GMAC shows that the major players "get it." They understand that cash is King and outsourcing is the way forward,

How much branding is needed for it to work? Could Chrysler dealers sell GM or Ford products? Would Cerberus pick-up Jag and Land Rover, turn them over to someone else to manage and sell the resulting products through their dealers? Sure. Why not?

Of course, none of this relieves Chrysler of its burden to build/import vehicles American consumers want to purchase. Something other than what they're trying to sell at the moment. And so the urgent reevaluation process has begun.

The Detroit News reports that CEO Tom LaSorda and Chief Operating Officer Eric Ridenour consumed Consumer Reports' scathing reviews of the Nitro and Sebring/ Avenger, checked the sales stats and freaked. Apparently the suits were "quite upset" that they "missed where the market was to end up versus our projections." They've begun a "series of deep dives into its processes and standards," looking at both current and future products.

But can they keep Chrysler afloat until Cerberus can change the game? Jeep is the only Chrysler division that's making money, but it isn't enough to carry the group. While Cerberus has deep pockets, will they be willing to continue pouring money into Dodge and Chrysler while they try to reverse nine years of epic mismanagement?

Although Cerberus repeatedly insists they're in it for "the long run," they've never actually defined the term. Since all things are relative, Chrysler has to move quickly if they're to survive the latest chapter in their less-than-illustrious recent history. Cerberus' mission is to make money, pure and simple. Whether sliced to bits or served whole, any company that doesn't meet that goal is history.

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  • Seldomawake Seldomawake on Jun 24, 2007
    For our purposes, a company is “dead” when it files for Chapter 11. And rest assured that we will take Chryslerberus off Suicide Watch (and Ford and GM off Death Watch) when we believe the companies are in no danger of filing. That's a good definition. However... I don't doubt for a minute that Cerberus is going to rip Chrysler apart, merging it into GMAC and handing out manufacturing et al. The Chrysler name and badge will live on (perhaps). To me, that's a death of a sort: the name lives on, but it's little more than a badge stuck on product lines that are managed and manufactured by various companies in China, India, etc. The company may never actually file Chapter 11, but effectively be completely different. Is there a way to recognize this? (Is it something one would even want to recognize?)

  • GMrefugee GMrefugee on Jun 25, 2007

    Management and union are mutually responsible for product quality, both in materials used and assembly. Both must act within the confines of the agreement. This puts a relatively high labor cost in place, which in turn limits the amount that can be spent on materials. To remind the "younger" readers, management "caving" into union demands seems a lot more reasonable when the company is making billions in profits and the workers demand their fair share. Trouble is, as we are discussing, now that the tables are turned and the big 3 are losing their rears, union's response is "not our fault" and "don't give up an inch." I would like to see Cerberus hand the vehicle assembly over to the UAW at a fixed rate per finished unit. I suspect that would help clear up any work rule and job bank BS real quick.

  • Fred Private equity is only concerned with making money. Not in content. The only way to deal with it, is to choose your sites wisely. Even that doesn't work out. Just look at AM/FM radio for a failing business model that is dominated by a few large corporations.
  • 3SpeedAutomatic Lots of dynamics here:[list][*]people are creatures of habit, they will stick with one or two web sites, one or two magazines, etc; and will only look at something different if recommended by others[/*][*]Generation Y & Z is not "car crazy" like Baby Boomers. We saw a car as freedom and still do. Today, most youth text or face call, and are focused on their cell phone. Some don't even leave the house with virtual learning[/*][*]New car/truck introductions are passé; COVID knocked a hole in car shows; spectacular vehicle introductions are history.[/*][*]I was in the market for a replacement vehicle, but got scared off by the current used and new prices. I'll wait another 12 to 18 months. By that time, the car I was interested in will be obsolete or no longer available. Therefore, no reason to research till the market calms down. [/*][*]the number of auto related web sites has ballooned in the last 10 to 15 years. However, there are a diminishing number of taps on their servers as the Baby Boomers and Gen X fall off the radar scope. [/*][/list]Based on the above, the whole auto publishing industry (magazine, web sites, catalogs, brochures, etc) is taking a hit. The loss of editors and writers is apparent in all of publishing. This is structural, no way around it.
  • Dukeisduke I still think the name Bzzzzzzzzzzt! would have been better.
  • Dukeisduke I subscribed to both Road & Track and Car and Driver for over 25 years, but it's been close to 20 years since I dropped both. I tried their digital versions with their reader software (can't remember the name now), but it wasn't the same. I let it lapse after a year.From what I've seen of R&T's print version, it's turned into more of a lifestyle thing like The Robb Report. I haven't seen an issue of C/D in a while.I enjoyed both magazines a lot when I was subscribing. R&T for the road tests (especially the April Fools road tests), used car reviews, historical articles, and columns like Peter Egan's Side Glances and Dennis Simanitis's Technical Correspondence. And C/D for the road tests and pithy commentary, and columns like Gordon Baxter's, and Jean Shepherd's (that goes way back to the early '70s).
  • Steve Biro It takes very clever or amusing content for me to sit through a video vehicle review. And most do not include that.Tim, you wrote :"Niche titles aren't dying because of a lack of interest from enthusiasts, but because of broader changes in the economics of media, at least in this author's opinion."You're right about the broader changes in economics. But the truth is that there IS a lack of interest from enthusiasts. Part of it is demographics. Young people coming up are generally not car and truck fans. That doesn't mean there are no young enthusiasts but the numbers are much smaller. And even those who consider themselves enthusiasts seem to have mixed feelings. Just take a look at Jalopnik.And then we come to the real problem: The vast majority of new vehicles coming out today are not interesting to enthusiasts, are not fun to drive and/or are just not affordable.You can argue that EVs are technically interesting and should create enthusiasm. But the truth is they are not fun to drive, don't work well enough yet for most people and are very expensive.EVs on the race track? Have you ever been to a Formula E race? Please.And even if we set EVs aside, the electronic nannies that are being forced on us pretty much preclude a satisfying driving experience in any brand-new vehicle, regardless of propulsion system. Sure, many consumers who view cars as transportation appliances may welcome this technology. But they are not enthusiasts. I don't know about you, but I and most car fans I know don't want smart phones on wheels.There is simply not that much of interest to write about. Car and Driver and Road & Track are dipping deeper into nostalgia and their archives as a result. R&T is big on sponsoring road trips for enthusiasts - which is a great idea. But only people with money to burn need apply.And then there is the problem of quality in automotive writing. As more experienced people are let go and more money is cut from publications, the quality and length of pieces keeps going down, leading to the inevitable self-fulfilling prophecy.Even the output on this site is sharply reduced from its peak. And the number of responses to posts seems a small fraction of what it used to be. This is my first comment since the site was recently relaunched. I don't expect to be making many in the future.Frankly Tim - and it gives me no pleasure to write this - but your post makes me feel as though the people running this site have run out of ideas and TTAC's days may be numbered.Cutbacks in automotive journalism are upsetting. But, until there is something exciting and fun to write about, they are going to continue. Perhaps automotive enthusiasm really was a 20th century phenomenon..