Cerberus Capital's Vision for Chrysler in 2007
John Snow Saw Private Equity as the Latest Savior for the Automaker
Apr 14, 2009 Carroll Trosclair
Daimler’s purchase of Chrysler in 1998 didn’t work as well as expected and the German automaker sold 80% of Chrysler in 2007 to Cerberus Capital, an American private equity group. Cerberus Chairman John W. Snow envisioned returning the USA’s third largest car manufacturer to its former glory. That didn’t happen and by 2009 Chrysler’s survival was dependent on a federal bailout and a partnership with Fiat, the Italian carmaker.
Snow, the former treasury secretary in the George W. Bush Administration, built his optimism on American entrepreneurship and wrapped it in the American flag. In a July 2007 speech prepared for the National Press Club in Washington (and still available on the Cerberus website), Snow said "Cerberus has the opportunity to use the tremendous financial innovation of private investment to turn Chrysler around."
Chrysler Federal Bailouts
But in December 2008 and March 2009, Chrysler requested and received multi-billion dollar bailouts from the U.S. Government. By 2009, it was in negotiations with Fiat to transfer at least part of the company to the Italian firm.
Chrysler’s financial troubles apparently grew faster and larger than Cerberus could handle. But in his National Press Club speech, Snow outlined what he considered some of the basic problems of American business and what he identified as potential new solutions. He recalled that the federal government had to bailout Chrysler 25 years earlier. "Private equity was virtually unheard of at that time," Snow said.
Convert Chrysler into Private Company With Long Term Value
But in 2007, he said, private equity and outside business consultants were capable of turning Chrysler into a private company that could "build longer-term value, to make strategic investments and to focus all of its energies on improving the company’s performance."
While acknowledging that private investment is not a "magic elixir," Snow said it would allow Chrysler management to plan and execute without Wall Street pressure. The automaker would be able to operate"without fear of short term negative market reaction from quarterly public company reports and the pressures to meet analyst targets," he added.
Private equity is patient equity and has "been instrumental in returning many under-performing companies to financial health and competitive vigor," Snow said.
Some of World's Best Brand Names
He said Chrysler had "some of the best brand names in the world. It’s also a company with a dedicated workforce, a talented management team, and a sound, long-term, turn-around plan." He expressed confidence that he could work out differences with labor leaders, as he had when head of the CSX Corporation. He cited rising health insurance costs and high fuel energy standards as two of the most pressing problems facing the auto industry in 2007.
"Our best and only hope is that our elected leaders craft reasonable and responsible policies for energy security, climate change, and for a strong and healthy U.S. auto industry," Snow said. "The wrong policy will result in the loss of hundreds of thousands of jobs – well paying jobs – in areas of our country that can least afford it.
Snow said Chrysler was "not asking for handouts or special treatment. What we are asking for is a fighting chance to turn this great American company around. We believe in Chrysler and we believe that it can overcome its current difficulties and return to profitability."
That was 2007.
Reference:
"Chrysler and Fiat", by Jerry Flint, Forbes, 1-21-09
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