Analysts: Chrysler Still Has Uncertain Future (Manufacturing.net)

http://www.ng2000.com/fw.php?tp=chrysler

08/05/2008: After a year with Cerberus, industry analysts say Chrysler faces a bumpy road that could include a future sale of part or all of the automaker.

 

Uncertain? That's the most optimistic statement I've seen in months!

 

And I would say the same for Ford, GM, Nissan, and all the others, too.
Its just going to be tough for carmakers in the future, period.

 

All three in the US seem to be swirling the drain, with the ones
farthest away heading down fastest. It's an interesting race...

 

This on top of the Nissan small car Chrysler is going to sell, and the
Dodge pickup Nissan is going to sell. A tie-up with Nissan is looking
more likely, methinks.

 

Well it may solve a Chrysler intermediate car problem for me, if
Chrysler doesn't screw up the Nissan products with their changes.
For example I don't like the Sebring (functionally) but I do like the
Altima.

 

Chrysler has a slightly different ownership situation than the others.
Cerberus is a rich man's hedge fund looking for short term profit,
regardless of where it leaves Chrysler.

 

I keep seeing this claim, but when I took a brief look at Cerberus's
portfolio, it seemed like they take on these companies and keep them.
So I'll ask the same question now I asked a year ago: what has
Cerberus ever sold? And (more importantly) what have they ever
dismembered and sold as pieces?

Nobody answered last time I asked that.

 

But does what they do work (thinking Home Depot).

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Hee's your answer.

Cerberus's Sharp-Toothed Ways
Firm Has History Of Turnarounds Fueled by Cuts
By Frank Ahrens
Washington Post Staff Writer
Tuesday, May 15, 2007; D01

In more than a decade of buying into down-and-out companies across
three continents, Cerberus Capital Management has applied a similar
strategy to most of its targets: cut, cut and cut some more.

Now Chrysler is set to join a list of acquisitions that includes long-
haul trucker Fruehauf, Air Canada and lingerie maker Frederick's of
Hollywood. Many of those companies have experienced turnarounds under
Cerberus's slashing ways, but not without pain.

New York's Cerberus bought more than 600 struggling Albertsons
supermarkets last year and laid off nearly 1,000 workers within
months. Last fall, the firm bought the on-the-brink Blue Bird school
bus manufacturer; earlier this month, Cerberus closed its Canadian bus
plant and let go 130 workers. Cerberus bought a North Carolina textile
company out of bankruptcy in 2004 and closed two mills within the
year. It bought the Alamo and National car rental chains out of
bankruptcy in 2004 and moved them from high-rent South Florida to more-
affordable Tulsa.

Cerberus's sharp-toothed ways may be inspired by its namesake:
Cerberus was the three-headed canine guardian of the gates of Hades in
Greek mythology.

Cerberus the company maintains an even lower profile than its rivals,
such as Providence Equity Partners, Blackstone Group and Washington's
Carlyle Group. Cerberus has $25 billion under management and in funds
and accounts. With just 200 of its own employees, Cerberus owns or has
pieces of about 50 companies with more than 175,000 employees and a
combined annual revenue of $60 billion, the company says.

The firm is run by financier Stephen Feinberg, who was a trader at
Drexel Burnham Lambert in the 1980s, when the firm popularized the use
of "junk bonds" for corporate takeovers. Former Treasury secretary
John W. Snow was named chairman of Cerberus in October. Former vice
president Dan Quayle is on the board.

Cerberus distinguishes itself from other private-equity firms by
maintaining a staff of in-house operations executives. Meaning: When
it takes over a company, it often doesn't have to recruit a new chief
executive; it puts one of its own in place.

"This is a bit of an unusual transaction for them in that it does now
make them very, very public," said Boston University law professor
Charles Whitehead, who studies equity firms. "It's like the Japanese
buying Pebble Beach -- if you want to get attention, this is the way
to do it."

These are flush times for Cerberus and all of private equity. Moneyed
investors seeking big payoffs have created an equity pool estimated at
$500 billion, up from $8 billion at the beginning of the 1990s,
according to the Columbia Business School.

Nearly $400 billion in private-equity transactions have taken place so
far this year, nearly doubling the dollar amount by this point last
year, Thomson Financial reported.

Investors are attracted to the high returns generated by equity funds.
Among Cerberus's investors is the California State Teachers'
Retirement System.

Generally, equity money seeks struggling industries where cuts can be
made and profits quickly increased. Some firms seek to flip their
companies soon after paring them to the bone. Others have a longer-
term view, taking their annual guaranteed profit and helping turn
around ailing companies.

Cerberus would not comment yesterday on its strategy but appears to be
in an automotive buying cycle. Previously, the company passed through
a fashion and retail stage by acquiring textile mills, Mervyns
discount department store and Frederick's.

Cerberus bought 51 percent of GMAC, General Motors' financing unit,
last year, and it owns auto parts maker Peguform Group in Germany and
is trying to buy into troubled parts maker Delphi. Now, the buyout
firm is set to add an entire automaker to its portfolio.

A look at Cerberus's track record with its previous acquisitions may
indicate how it will treat Chrysler and raise the question: Under a
Cerberus ownership, will one of Detroit's Big Three remain so, or will
it become a substantially smaller automaker, more analogous in size to
Mitsubishi than Ford?

Albertsons was a supermarket chain based in Boise, Idaho, that spread
throughout the West. Hurt like all supermarket chains by Wal-Mart, the
company's sales went flat and profits dropped. Cerberus joined
supermarket chain SuperValu to buy 655 Albertsons stores in January
2006 in a $17.4 billion deal.

Cerberus went to work fast. In June 2006, nearly 200 Albertsons
warehouse workers were laid off in Northern California. The next
month, a number of Albertsons stores ended their costly online grocery-
shopping services. In November, Cerberus sold 132 Albertsons in
California and Nevada. A year later, Cerberus-owned Albertsons closed
nine Colorado stores, laying off 750.

Shoppers have noticed improvements at Cerberus-owned Albertsons in
Florida, the St. Petersburg Times reported last month, and the chain
has installed efficient new registers, raised some prices and
instituted systematic employee training for the first time.

In 2004, Cerberus targeted Mervyns, an underperforming chain owned by
Target and squeezed by rivals such as Wal-Mart and Kmart.

Cerberus paid $1.7 billion for 257 Mervyns stores and started cutting.
In September 2005, the company said it had decided to concentrate on
California, exiting poorer markets in Michigan and Oklahoma. As a
result, the company closed 62 stores and laid off 4,800 full- and part-
time workers. Four months later, Mervyns pulled out of Washington
state, closing 20 stores and letting go 880 full- and part-time
workers, and closing stores in Oregon, as well.

Now, Mervyns is trimmed down to 189 stores, including four new stores
opened in October in California, Texas and Arizona, the first since
the Cerberus acquisition. Cerberus's Vanessa Castagna is chairman of
Mervyns' board and said at the time that the company will continue to
"expand in our core markets."

Staff writer Thomas Heath contributed to this report.

 

Good-bye Chrysler.

 

Thanks, but that answers a different question: it says their strategy
for turning around ailing companies is to shrink the company until
it's profitable. It doesn't say they're only looking for short-term
profit, nor that they'll get Chrysler profitable and then sell it off.

 

Well at least Cerberus is consistent.
Their bean counting approach has been cutting back at Air Canada, but
they are increasingly losing business to newer rival Westjet who just
formed an alliance with Southern.
Under Cerberus Air Canada has even cut back on their Aeroplan points
scheme, so much that people are starting to get out of it.

Do they see Chrysler's only value as a manufacturer of high profit
trucks with a valuable dealership network to sell others cars?

 

I feel just the opposite. Nissan made the new Altima too big, from
the late '90s model. Do they still put a four cylinder in the Altima?

 

On Aug 10, 10:23 am, "Count Floyd"
 Nissan made the new Altima too big, from the late '90s model.

Not the coupe. I'd take one of these over the smaller ones, the
Toyota, Saturn and Pontiac. Too small.

 

I had a 1993 Altima. Great inexpensive car. Then Nissan kept jazzing
it up, adding frills, making it bigger and upping the price. It's no
longer an inexpensive car thats a step above the no-frills cars. It's
almost where the Maxima was market wise not that long ago.

 

Albertsons.

Steve B.

 

OK, reading the story... that's closer to the "buy and dismember"
model than I was aware of previously (at least, the sale of some
stores to SaveMart). On the other hand, they've also bought a couple
of stores since then. The "buy and dismember" model I'm thinking of
is more like Carl Icahn.

 

Nissan makes a decent small car. But Nissan can't build a truck to save
their life. IT may indeed work.

 

You could equally well argue that as a private company, it has greater
agility in times that demand rapid change. Who knows how it will pan out?