Tuesday, November 6, 2007

Cerberus Chairman Positive On GMAC, Sees Chrysler Turning Around

Dow Jones

CHICAGO -(Dow Jones)- Cerberus Capital Management Chairman John Snow remains optimistic about the potential of GMAC Financial Services despite problems in the housing market that are expected to last well into 2008.

"We think GMAC is a terrific property. It will reward our investors over time. We don't time the market," Snow said in an interview Monday following a presentation sponsored by the Executives Club of Chicago.

"Would you rather have housing strong? Absolutely. But the housing market will come back and ResCap will be a big part and GMAC will be a big part of housing finance," Snow said. "So, we're still very positive about it (GMAC)."

GMAC, in which Cerberus owns a controlling stake, last week announced that it posted a $1.6 billion loss in the third quarter due to losses at its ResCap residential mortgage business. ResCap, like other large lenders and companies with exposure to the housing industry and subprime loans, has seen its operations suffer amid falling housing prices and increased numbers of defaults.

Snow, the former U.S. Treasury Secretary, noted that most economists expect it will take about 12-18 months for the excesses in the housing market to be resolved. He said during his speech earlier that the adjustment process in the housing sector is just beginning and that the slowdown will cut into economic growth.

Growth will likely moderate to about 1.5% in part because of reduced consumption stemming from falling housing prices, Snow said. But he said in the interview he expects that by late 2008 or in 2009 that the U.S. economy will return to growth rates of between 2.5% and 3%.

The revival of growth rates would also provide a boost to Chrysler LLC, which Cerberus acquired in August. Chrysler - which posted a $680 million loss last year that prompted a major restructuring effort and former parent DaimlerChrysler to put the company up for sale - last week announced expanded job-cut plans to address worse-than-expected auto market conditions in the U.S.

"I'm very optimistic about the American economy and about autos as a significant part of the American economy," Snow said in the interview Monday.

Asked if the recent slowdown in the auto industry has changed Cerberus's view on when profitability at Chrysler will be restored, Snow said, "Not really."

He wouldn't comment on when profitability will be achieved, saying, "We don't have artificial deadlines." Snow said it isn't important if profitability is achieved by a particular quarter.

"What's important is 'are you getting this thing turned around?' " Snow said. "If it takes a little longer or a little less, it doesn't really affect the long-term cash flows. And what we're in it for is long-term profitability and long-term cash flows.

"This is a big engine. If you get it working right, it'll reward our investors," Snow said. Asked if the company was getting turned around, Snow said, "Absolutely," citing recent executive appointments and steps to improve productivity and products.

Snow said that Chrysler is focused on producing vehicles that buyers want, with a special emphasis on building relationships with dealers.

"I think you're going to see a much more customer-responsive company in Chrysler," he said. "It's the new mantra at Chrysler," he added, noting that it will likely result in changes in the company's product mix.

He noted that Chrysler, under Cerberus ownership, is able to move much more quickly on strategic decisions - such as production levels or job cuts - than it could as a public company. With regard to a recent decision to cut production levels, Snow said that the decision took seven minutes, when in the past it might have taken weeks.

Snow didn't comment on possibility of combining operations of GMAC and Chrysler Financial.

He also wouldn't comment on potential interest in troubled mortgage bank Northern Rock PLC (NRK.LN) of the U.K. Sources have said that Cerberus is conducting due diligence on Northern Rock, as are Virgin Group and J.C. Flowers.

No comments: