Wednesday, May 16, 2007

New Chrysler takes a step back to the past

Edward Lapham is the executive editor of Automotive News. He writes commentaries for Automotive News online every business day. His commentaries also can be found here.

Edward Lapham | Automotive News
May 14, 2007 - 11:25 am

There can be something zany about stepping into the past.

Think about how much fun we had with Marty McFly, Dr. Emmett Brown and the DeLorean time machine in the Back to the Future movies; not to mention the cartoon series Peabody's Improbable History, featuring Mr. Peabody, Sherman and the WABAC (pronounced Wayback) Machine.

Now we have the Cerberus/Chrysler Deal -- which takes us back to the thrilling days of yesteryear, when private capital built and controlled the fledgling auto industry. It's a time that predates the Securities and Exchange Commission, collective bargaining and the sell-off of parts operations.

The world has changed in the intervening decades. But the Cerberus deal will cause flashbacks in key areas.

    1. Cerberus resembles a return to the vertically integrated automotive enterprise. While automakers have been divesting parts making operations, Cerberus has been grabbing them.
Cerberus owns CTA Acoustics, which produces acoustical and thermal insulation; sealing producer GDX Automotive; and 51 percent of finance company GMAC LLC. Cerberus also is acquiring Tower Automotive and is still interested in a deal with Delphi.

By the way, it's intriguing how Wolfgang Bernhard fits into that strategy, unless he has had a change of heart. As a former colleague of Bernhard's reminded me over the weekend, at Chrysler, Car Guy Bernhard was a proponent of shedding supplier operations, not acquiring them. According to the former Chrysler exec, Bernhard's philosophy was that if you don't own the asset, you don't need to worry about how it contributes to return on net assets.
    2. That raises issues about how the privately held Cerberus will get along with the unions that represent Chrysler's employees. It was encouraging to hear Cerberus Chairman John Snow and UAW President Ron Gettelfinger talk about concern for the future of Chrysler workers.
But you know there will need to be cuts to make Chrysler competitive and profitable. And because of the differing financial conditions of the Detroit 3, the Cerberus deal may well mean the official end of pattern bargaining.
    3. As a privately controlled venture, Chrysler's management will be able to worry less about details such as short-term financial results, appeasing institutional investors, impressing Wall Street analysts and keeping the public informed about every little detail of the business through the media and the SEC.
All of which begs the question of whether we've learned anything in the past century.

Maybe ... as long as they don't disrupt the space-time continuum.

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