Let’s hand it to Cerberus

Cerberus has been an interesting owner for Chrysler. The roller-coaster ride that started in 1923 continued under their reign, accelerated to sometimes-absurd speeds. Their love for secrecy led to an overactive grapevine, especially as they combined it with a new openness in other areas. Their high-profile hires were sometimes exceptional (Jim Press) and sometimes awful (Campi).

When Cerberus took over, I looked at their history, like everyone else. On the one hand, they seemed awfully thick into politics for any honest outfit. Hiring John Snow and Dan Quayle didn’t seem like the actions of a company that operated on the level. On the other hand, they had a history of keeping companies for a long time, not stripping-and-flipping as some other private equity firms did, and there wasn’t much in the way of overt scandal (unlike, say, Carlyle Group). On the whole, they seemed decent enough.

The day Bob Nardelli was chosen to lead the company. The high spirits and soaring morale of the Chrysler insiders suddenly fell into despair. People were calling and asking, “Is it really true? Are they serious? What’s happening next?” Nothing good could come of this, I thought at the time – and when Nardelli brought in his fellow overpaid Home Depot acolyte to head up the supply chain, I thought that was pretty much the end. I expected to see Chinese batteries that couldn’t hold their charge and Chinese camshafts that couldn’t hold their tune.

Chrysler really has been a roller coaster. The new guys made many careful hires and many careful fires. They dropped the insane Daimler linkup with Chery, and while they continued the exporting of engineering to a degree, they also worked hard to get the new generation of vehicles in shape. To be fair, the Ram and Challenger were started under Dieter, and thanks to Dieter, they were a marked improvement over what we had seen before; but rumor had it that Cerberus people went over the plans and quite a bit was changed to make both vehicles more presentable, with positive results. We’re told that the next generations will knock our socks off – by people who should know.

The Phoenix continues. The automated manual transmission, well, we have no idea. The Mercedes automatics are lingering like a bad smell (did they have a long term contract?). The Grand Cherokee and Durango will be resurrected, the same way I would have done it – on the same platform, lighter and more nimble. The minivans have, unaccountably, been largely unchanged since 2008 — except that the 4.0 V6 now gets better mileage than any other minivan, including Chrysler’s own 3.3 and 3.8 liter V6 minivans. Go figure.

Cerberus has topped themselves at this point, giving up their equity in Chrysler to creditors and employees. Sure, they might be doing it to protect themselves against future losses, but I don’t think so. I think they figure Chrysler only has so much equity, and if they’re asking employees to cut their pay by $12,000 a year (or more) and lose most of their health pay, and if they’re going to be trying to renegotiate pensions that people are relying on, and asking creditors to take just 1/3 of what they’re owed – draconian measures demanded by the White House – they need to provide something in return. Maybe. I think the White House, Congress, and most Americans feel that union workers should be jailed, not compensated, but that’s their own hysteria and ignorance and perhaps envy. (Though Congress gets stellar health and pension plans, and I don’t recall Senators Shelby and Corker giving those up. Nor do I recall Bush giving up his own very generous pension, or asking his banker friends to do so. Or demanding staff cuts at the White House given how much money the country has been losing. But that’s another rant.)

Now, what Cerberus is doing makes sense financially. A healthy Chrysler means a profitable Chrysler Financial. A healthy Chrysler means a Chrysler Financial that brings in billions of dollars a year in pure profit. That’s more than enough to pay for this whole deal – in time. Say, ten years and they’ll be a few billion ahead, even after that other nice gesture – investing their first $2 billion in Chrysler Financial profits back into Chrysler. (Of course, depending on how they do it, it might be the same as if they had kept the equity in the first place.)

You have to admire Cerberus sometimes. I don’t know their motivation, but it appears as though they’re being unexpectedly generous. Sure, it might “backfire” into higher profits for them, but they could probably be less generous and still benefit. And not once did they whine in public about paying their workers too much. Perhaps they did send John Snow around to schmooze legislators, but in public, unlike Daimler, they stressed Chrysler’s wartime record, the quality of its new cars, its history of innovation, and its hard working employees of the present day.

It’s a nice change.

_{»crosslinked«}