Cerberus-Chrysler: “Reality Bites” Says The Economist
January 11, 2008

Five months after Cerberus Capital Management was handed the company (for nothing, in effect) by Chrysler's former parent, Daimler, there are growing fears that the acquisitive private-equity group may have bitten off more than it can chew, The Economist magazine writes in this week’s edition.

The British publication notes three main problems facing Chrysler’s new management team with little or not time to solve them:

1. Chrysler needs to limit its exposure to the volatile and competitive domestic market – even more than Ford or General Motors – by expanding outside of the U.S. Only 9% of Chrysler's sales are outside North America, compared with over 50% at both GM and Ford. Chrysler management constantly notes potential growth opportunities but it is late to the party and a tie-up for a desperately needed small car, expected from China’s Chery, has stalled.

2. Chrysler must limit its dependence on truck-type vehicles, hardest hit by high fuel prices. Despite some new product offerings, about two-thirds of Chrysler's sales still are in that category.

3. “and perhaps the most serious,” notes The Economist, echoing what AutoObserver has long said, is the lack of hot new product. The new minivans have received lukewarm response. New products, particularly the Dodge Avenger and Chrysler Sebring as well as the Dodge Caliber crossover, have been criticized for “crude underpinning and conspicuously cheap interiors.” (The latest ratings of midpriced sedans by Consumer Reports about the Dodge Avenger is even less kind.)

The Economist writes: “Ford and GM are closing the gap with European and Japanese models for sophistication and perceived quality. Chrysler has been going backwards.”

Bail, Sell or Merge?

Chrysler's new management recognizes the problems, but it costs money, something private equity firms, especially with pressure on its “ill-timed purchased stake in General Motors Acceptance Corp., aren’t fond of doling out, to fix the problems.

Writes The Economist: “So, Mr. Nardelli will have to find another way to compete. Rumors abound of something dramatic in the works. One idea, a merger with Ford, is improbable. But Mr. Press hints at various possible partnerships. Might membership of the Renault-Nissan alliance, rejected by GM just over a year ago, be a way out of Chrysler's jam?”

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