The $7.4-billion Chrysler buyout by private-equity firm Cerberus Capital Management may be an exciting business story, but it won't necessarily bring new drama to the dealership. The first product introduction you can expect, according to analyst George Peterson, president of industry consulting firm AutoPacific, is a high-revving PR spin machine. The "new Chrysler" won't involve new models so much as a message something along the lines of this, he says: "We're the new American Chrysler—expect great things from us." In other words, Cerberus will play up the all-American angle, create some slick new advertising and try to build up consumer interest in Chrysler's current product line.
Further down the road, there are two basic scenarios for the new Chrysler Holding LLC, which hinge on whether Cerberus is serious about building cars over the long haul. "They paid an awful lot of money for not-so-great products," one industry insider close to the deal told Seniorhelpline. "It looks like a less-than-five-year plan to me." If the firm's end game is just a quick turnaround, Cerberus would likely slash a billion or two from the bottom line each year by cutting costs and stalling some expensive new vehicle programs—or eliminating them completely. The goal would be to turn a profit in a few years, then put Chrysler up for sale again.
The scenario that a lot of car fans are hoping for, however, is the one in which Cerberus treats Chrysler as a long-term investment. And there are three encouraging signs that this is the reality.
First off, Daimler keeps 19.9 percent of Chrysler in this deal, so, at the very least, many of the joint product programs will continue in the near future. For example, the next generation of the Jeep Grand Cherokee and Mercedes ML will share the same architecture.
Second, Cerberus already owns at least parts of five different automotive companies, including several key auto parts suppliers and GMAC financing. Furthermore, the private-equity group remains in the mix to purchase Tower Automotive, another large automotive supplier. So Cerberus has a stake in the industry and can probably negotiate some cost savings for Chrysler internally.
Finally, the prospect making plenty of headlines today is that a Cerberus-owned Chrysler might be able to trim its legacy costs with the United Auto Workers. "Now that Chrysler is an American company again," Peterson says, "they may have more leverage with the UAW at the negotiating table." If that comes through, Cerberus will have a good start on the process of reviving Chrysler.
So what exactly should Chrysler's new Wall Street owners do—product-wise, long-term—to turn the company around? For starters, here are seven strategies that might just leave Cerberus making cars for a long time to come:
1. Get inexpensive and fuel-efficient small "B" cars on the market soon by maintaining DaimlerChrysler's relationship with Chinese company Chery Automotive.
2. Make the Chrysler brand a true luxury-car competitor to Cadillac.
3. Invest in near-term technology for saving fuel, such as gas-electric hybrids and diesel, while generally creating a "greener" image for all Dodge, Jeep and Chrysler vehicles.
4. Leapfrog Ford and GM with the next-generation, full-size Ram pickup in terms of capability and fuel efficiency.
5. Add more fuel-efficient crossover SUVs to the product mix.
6. Return Jeep to its roots by creating more exciting vehicles off the successful new Wrangler platform.
7. Improve the interior quality of all Dodge and Chrysler vehicles.