Big changes loom for new Chrysler

Bill Vlasic and Christine Tierney / The Detroit News

AUBURN HILLS -- The concept car had been shown publicly and critiqued internally. Business plans had been written, and Chrysler Group executives had debated for months whether to build the flagship luxury sedan.

But it would be up to Wolfgang Bernhard to ultimately approve or kill the Chrysler Imperial.

In mid-July, the incoming chairman of Chrysler made his call in dramatic fashion at a final product review, according to people familiar with the event.

"That car," Bernhard said, "will never see the light of day."

His swift decision is a preview of how Chrysler will operate under Cerberus Capital Management, the secretive private-equity giant that will soon complete its $7.4 billion buyout of the No. 3 U.S. automaker.

With Cerberus exec Bernhard as its hands-on chairman, Chrysler is expected to move quickly and forcefully to turn around its sagging domestic operations and grow its international business.

Cerberus is expected to close on its acquisition of Chrysler from DaimlerChrysler AG as soon as Friday, according to people close to the process.

It's the deal of the decade in the global auto industry and the beginning of a new era for Chrysler, the smallest of Detroit's struggling Big Three automakers.

Big changes are in store for the new Chrysler, including the possibility of an expanded alliance with Korean automaker Hyundai Motor Co. and a deal to build cars in Russia, The Detroit News has learned.

But overseas projects and U.S. product moves are only part of the transformation awaiting Chrysler, which lost $680 million in 2006.

After nine years as a division of a domineering German parent company, Chrysler will get a much-needed fresh start as the prized possession of Cerberus.

'We bring a fresh set of eyes'

Led by its hard-driving founder Stephen Feinberg, the New York-based private-equity firm owns more than 50 companies and applies cutting-edge business techniques to its corporate turnarounds.

"We are a lot more than a financing company," said John Snow, Cerberus chairman and a former U.S. Treasury Secretary. "We bring a fresh set of eyes that looks at a company's problems from another vantage point."

Since agreeing to buy Chrysler in May, Cerberus has sent squads of financial and management experts to Auburn Hills to assess the company's strengths and weaknesses.

Bernhard, Chrysler's chief operating officer from 2000-04, has swept through the organization like a whirlwind -- poring over product plans, brainstorming with executives, checking on even routine events like press previews for the minivan launch.

The level of oversight by Cerberus might surprise outsiders who expect the firm to stay in the background at Chrysler, said one private-equity expert.

"A lot of people think private equity is just all about financing, and it's not," said David Brophy, director of the Office for the Study of Private Equity at the University of Michigan.

Brophy said the bulk of Cerberus' attention will focus on Chrysler's core activities -- purchasing, manufacturing, product development and sales and marketing.

Sources close to the situation said Cerberus insisted that detailed performance goals for Chrysler and its executives be written into the buyout deal.

"The trademark of private equity is to set high goals for a company where it's not doing well," Brophy said. "With Chrysler, you've got to turn your attention to making cars that customers want."

Chrysler slipped behind Toyota Motor Corp. to fourth place in U.S. sales last year, and seems stuck at a 13 percent share of the market.

This year, Chrysler's U.S. sales are down about 2 percent through July.

A new minivan model this fall should boost sales, but Chrysler's longer-term challenge is

 

What Chrysler needs to learn to do is put in equal effort in all of their models. They need to put in equal effort into the mid-sized, compact, smaller to mid-sized truck market as they did with the LX cars, full-sized trucks, and minivans. If they put in the same effort, they would be a lot better off.