Monday, May 14, 2007

Chrysler's Latest Rescue

As I wrote in this post in the fall of 2005, I expected at least one of America's Big Three auto makers to have some sort of change of control by 2010. My exact wording was,

"Judging from where GM and Ford appear to be putting much of their energies these days, I’d say we’re going to be shy at least one major US-based car manufacturer before the decade is out. It may involve a merger among onshore rivals, if Congress is afraid to let so many UAW workers lose their jobs at once through a total financial failure of GM or Ford. But I'm willing to bet there will be one less automotive CEO in Detroit when 2010 dawns."

My verbiage was, I suppose, focused on the still-independent companies. My intent was to predict a change of ownership in one of the three, if not bankruptcy.

Today's sale by Daimler, to Cerberus, the private equity group, of its Chrysler unit, in my opinion, qualifies as meeting my prediction.

What puzzles me, though, is how Cerebrus plans to actually operate the weak man of Detroit at a continuing profit, amidst the general consensus about excess capacity in the sector. Sure, they own some suppliers, and maybe even have a few old auto company hands. Does that mean John Snow & Company can turn back the tide of industrial economics in the sector, and restructure and rehabilitate Chrysler's product line, financial situation, and marketing so thoroughly, successfully and quickly as to create value where nobody else could?

We all know that the UAW can break any deal for Chrysler. Or the other two- GM and Ford- for that matter. Whether they can actually make the deal....that's another question.

I have my doubts. So many analysts, including many of today's commentators on CNBC, focus on the labor costs when they discuss these auto makers. But it was the white-collar managers who led GM, Ford and Chrysler to where they are now. I don't think the machinists and assemblers down on the factory floors can remedy those ills.

Of course, once Cerberus gets its hands on Chrysler and drags it behind the impenetrable curtain of its private balance sheet, there's no telling what will come back out, and with what profitability dynamics. I'm eager to see this one come out the other end.

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