Wednesday, May 16, 2007

New masters, old troubles at Chrysler

But its Canadian-born CEO says Cerberus has made 'a long-term investment' to rebuild the auto maker


Tom LaSorda has new bosses at Chrysler, but still faces many of the same problems that led DaimlerChrysler AG to sell the company to a giant private equity firm.

"This is not going to be easy," the Canadian-born chief executive officer and fourth-generation Chrysler employee acknowledged yesterday, one day after Cerberus Capital Management LP paid $7.4-billion (U.S.) to take over the third-largest U.S. auto maker.

"We're still up against the same economic factors. We're still up against the same competition," he told reporters.

The company he runs suffers from a competitive disadvantage against rivals Ford Motor Co. and General Motors Corp., is almost entirely focused on a North American market and has no subcompact car at a time of rising gas prices. He's not just on the hot seat, "it's the electric chair," said Gerald Meyers, a University of Michigan professor and former chair of American Motors Corp.

"I would not take the job," Mr. Myers said, noting that four former senior auto executives, including former Chrysler executives Wolfgang Bernhard and Gary Dilts, have joined Cerberus and will be watching every move Mr. LaSorda makes. "Those guys are going to sit up there and second-guess the hell out of him."

Mr. LaSorda, a native of Windsor, Ont., who grew up four blocks from what is now one of Chrysler's manufacturing crown jewels, described Mr. Bernhard as a friend and a superb resource to draw on. The two were scheduled to meet yesterday. He also disputed the view that Cerberus is a short-term investor that will slash Chrysler and sell off divisions before flipping it.

Cerberus chief executive officer Stephen Feinberg joined Mr. LaSorda yesterday in meeting Canadian Auto Workers president Buzz Hargrove.

"It was clear from Stephen Feinberg that this was a long-term investment for them as we continue to move this company to profitability," Mr. LaSorda said.

He added that some decisions he made at Chrysler in recent years were not the best choices but were made because of pressure to meet quarterly sales and profit targets. Private ownership allows a longer-term view, he said, although analysts noted private equity typically wants instant profits and high returns.

"It is the antithesis of what you would normally think of as patient capital," said David Cole, who heads the Center for Automotive Research in Ann Arbor, Mich.

But the Chrysler restructuring plan that calls for profit of 2.5 per cent of sales by 2009 has been endorsed by Cerberus, Mr. LaSorda said. Chrysler reported a first-quarter loss before interest and taxes of $1.99-billion yesterday, compared with a profit of $857-million a year earlier. It cited restructuring charges of $1.2-billion.

Mr. Hargrove extracted a promise from Mr. Feinberg that there will be no job cuts at Chrysler operations in Canada as a result of the deal.

"He's really talking about rebuilding Chrysler and working to rebuild manufacturing in the United States and Canada," Mr. Hargrove said.

The most important near-term task for Mr. LaSorda will be to reach a deal with the United Auto Workers this fall that cuts costs and matches health care concessions the union has given Ford and GM, but refused to give to Chrysler.

The $18-billion health care liability at Chrysler must be reduced, Mr. Cole said. "That is not sustainable." Chrysler as a stand-alone company probably isn't sustainable, he added.

"You've got a low-volume, light-truck-skewed product line that's regional. If I were private equity, I'd be talking to people like the Chinese, PSA [Peugeot] or Renault Nissan."

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