Thursday, July 12, 2007

Chrysler's buyer warns of impact of fuel rules

The chairman of the company acquiring Chrysler Group came to suburban Detroit with a warning Wednesday that legislation already passed by the U.S. Senate to increase fuel efficiency standards could sink the U.S. auto industry.

Cerberus Capital Management Chairman John Snow said he remains confident that:

Cerberus can raise the money to take over Chrysler.

• Chrysler CEO Tom LaSorda has the right plan to fix the company.

• Chrysler will thrive as an independent U.S. automaker.

It was Snow's first major appearance in the Detroit area since it was announced in May that the private equity firm would invest $7.4 billion to acquire 80.1% of Chrysler from DaimlerChrysler AG.

Like a carpenter who fixes up houses, Cerberus fixes up struggling companies, Snow said.

"A firm like Cerberus buys a company, fixes a company and holds a company," he said. "We never buy a company with an exit strategy."

About 700 people who attended the luncheon at Rochester's Royal Park Hotel erupted in applause when Snow mentioned Chrysler returning to U.S. ownership, but he focused mostly on fuel economy issues.

Snow delivered a clear message that pending legislation in Congress could have horrible effects on the U.S. auto industry.

With the Senate and President George W. Bush firmly backing tougher fuel standards, the auto industry is forced to lobby for standards it says it could live with, rather than block Congress entirely as it has been able to do in the past.

In Washington, D.C., House Majority Leader Steny Hoyer, D-Md., told reporters Wednesday that any energy bills Congress sends to the president this year likely would include some kind of fuel economy increase similar to what the Senate passed and which he and House Speaker Nancy Pelosi support.

Snow said Cerberus agrees that the United States needs to reduce its dependence on foreign oil and to reduce carbon emissions, adding that some of Detroit's problems in Washington are of its own making.

"The auto industry suffers from some credibility gaps. It's viewed as having whined too long or complained too long or said the sky is falling too often. ... My hope is that Cerberus being a new voice here -- we're fresh eyes on these problems -- can help deal with that stigma."

Last month, the Senate approved legislation to require the auto industry to meet a combined vehicle standard of 35 miles per gallon by 2020.

Supporters of the legislation, including environmental groups, say the changes are a way to reduce gasoline consumption and pollutants that contribute to global warming.

In particular, some have said the Senate measure could have a harder impact on Chrysler with its truck-heavy lineup, possibly even threatening its survival.

New standards that disproportionately punish the auto industry could require Cerberus to pump more money into Chrysler and raise the cost of vehicle production, Snow told reporters.

"One of the serious problems with the Senate bill is that it is telling the auto industry what products to produce. Far better to have standards that allow the marketplace to determine that," Snow said.

The industry could live with an alternative proposed by U.S. Rep. Baron Hill, D-Ind., and supported by U.S. Rep. John Dingell, D-Mich., other automakers and the UAW that would require cars and trucks to fall within a range of 32 to 35 m.p.g. by 2022, Snow said.

Such targets would be tough for the auto industry to achieve but "something that is conceivably achievable, not a set of standards, which are so one-sided that they can't be met and which have the risk of sinking the U.S. auto industry," he said.

Asked about combining operations of GMAC -- General Motors Corp.'s financing arm, which Cerberus controls -- and Chrysler Financial, Snow demurred.

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