Wednesday, May 16, 2007

Chrysler's 'Deep Bench'

Joann Muller, 05.16.07, 6:00 AM ET

The Chrysler Deal


Chrysler Chief Executive Thomas LaSorda no longer has to answer to public shareholders or German bosses at DaimlerChrysler AG. But as he sets a new course for Chrysler as a stand-alone private company, he does have to contend with a three-headed dog.

The automaker's new owner, Cerberus Capital Management, is named for a monstrous, multiheaded creature in Greek mythology that guarded the gates to Hell. Cerberus is chock-full of former auto industry executives who no doubt will be offering their opinions about how LaSorda should run Chrysler.

Cerberus' "deep bench," as LaSorda puts it, includes Wolfgang Bernhard, Chrysler's former chief operating officer, and David Thursfield, Ford Motor's (nyse: F - news - people ) former head of international operations, along with Robert Rewey and Gary Dilts, former sales and marketing executives at Ford and Chrysler, respectively. LaSorda said he'd be "crazy" not to use the product development and cost-cutting talents of Bernhard, but added, "He works for Cerberus." A new Chrysler board of directors will be formed in the coming months, LaSorda said.

As head of a private company, LaSorda said, he won't feel as pressured to make decisions that aren't in the company's best interests. One example: Chrysler's disastrous buildup of inventory last year in an ill-fated campaign to meet sales expectations back in Germany.

Cerberus is promising patience while LaSorda tries to lead a turnaround, but like any private equity group, it will likely seek a substantial return on its $7.4 billion investment in a fairly short period.

For LaSorda, the pressure to deliver is as intense as ever. "I didn't expect anything else--Daimler leaves and the pressure comes off," he told reporters Tuesday, one day after DaimlerChrysler (nyse: DCX - news - people ) announced plans to sell all but 19.9% of the American car company to Cerberus. "It's very, very critical that you get the returns."

Cerberus has endorsed LaSorda's recovery and transformation plan, outlined in February. "That's a three-year outlook. I'm sure beyond that we'll be more aggressive," LaSorda said. The plan calls for Chrysler, which lost $1.5 billion last year, to return to profitability by next year and earn a 2.5% return on sales by 2009. It includes 13,000 job cuts and the closure of an SUV factory in Delaware, along with new investments in fuel-efficient power trains and renewed marketing efforts for the Chrysler, Dodge and Jeep brands.

"These brands will not be broken up under any circumstances," LaSorda said Tuesday. "The product plan is set."

One priority is to find global partners that will help Chrysler develop small, inexpensive cars for developing markets like Southeast Asia, India and Russia--something that Daimler could not provide through its Mercedes luxury brand. Chrysler already has a tentative deal with China's Chery Automobile to import Chinese-built small cars to North America and Europe.

February's announcement by DaimlerChrysler that it would explore all options for Chrysler was a distraction for employees at its Auburn Hills, Mich., headquarters. "It's now decided," said a relieved LaSorda. "We can move forward."

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