Quote of the Weekend: Never Bite Off More Than Your Three Heads Can Chew Edition

by Edward Niedermeyer

Published: August 9th, 2009

quote of the weekend never bite off more than your three heads can chew edition

“We were too optimistic on timing. Maybe what we should have done was not bought it.”

Cerberus Capital honcho Steve Feinberg in a New York Times takedown on his private equity bid to turn Chrysler around. Ya think? So where did The Old New Chrysler go wrong? Was it simply “one of the investments made at the very top of the credit bubble,” as a Harvard Business School professor puts it? Or was it that “Cerberus did not have a clue about the automotive industry,” as a former Chrysler employee claims? Or was Cerberus’s investment of $7.4 billion not enough in the first place? Probably all of the above, but whatever the correct diagnosis is, it’s lost on Feinberg. “I don’t know what we could have done differently,” he says. “From the day we bought it, we worked hard to improve it.”

Edward Niedermeyer

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4 of 23 comments

Zerofoo on Aug 09, 2009
We were too optimistic on timing Optimistic indeed. Wall Street types have extremely short time lines. We are talking about guys who have difficulty seeing past this quarter into next quarter. In the automotive business progress is measured in decades, not quarters. Product cycles, from concept and design to end of life, can take 5-10 years. Repair parts for those vehicles may be available for 5-10 years after that. Wall Street doesn't have the attention span to run an auto maker. Anyone who thinks so is a fool. -ted

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HEATHROI on Aug 09, 2009
I’ve never bought into this being a strip-and-flip, and viewed it a specialization/ outsourcing strategy. Chrysler Co. was going to focus on building minivans and trucks for itself and others, and have most of the cars built by other parties, and it had probably planned on expanding internationally to tap into emerging markets. I'm not certain about that that excuse works either as I understand the profit margins on trucks were very large then it may have made sense for a outfit to build its own the Sienna & Odyssey killed any notion of Chrysler superiority in vans Any attempt at selling Chrysler outside the US especially with the Neon/PT Cruiser/Caliber was received with scorn. They were interested in the 300 but wondered why its interior was so low rent. These were Californian house flippers looking to redo an aging French Chateau - out of their depth - in time, money and skill - plenty of ego though.

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Motownr on Aug 10, 2009

@Lorenzo: Bingo. GMAC is the funnel that refills the coffers. It was always in the plan to combine CFC and GMAC. GMAC will be a money printing operation once they flush the remaining bits of RE portfolio. The auto lending operation is already cashflow positive.

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Pch101 on Aug 10, 2009
I understand the profit margins on trucks were very large then it may have made sense for a outfit to build its own Nissan has struggled with full-size trucks, and were a good candidate to buy them from Dodge. the Sienna & Odyssey killed any notion of Chrysler superiority in vans Good enough for VW, apparently: http://www.thetruthaboutcars.com/2009-volkswagen-routan-review/ Any attempt at selling Chrysler outside the US especially with the Neon/PT Cruiser/Caliber was received with scorn. They were interested in the 300 but wondered why its interior was so low rent. I presume that the plan to sell in emerging markets would have involved selling outsourced cars, such as whatever they would have acquired from Chery, Tata, etc., along with some Jeeps. If you learn the private equity approach and mindset, you can see why they would have tried it this way. PE funds that aren't looking to immediately liquidate will typically hire new management (the presumption is that the existing management failed) and shift the focus of the company to doing what the company does best, while outsourcing the rest. Not a bad approach in theory, but the car business has much longer cycles than most businesses, and I doubt that they properly accounted for that critical difference.

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