Snow: Cerberus to Make Chrysler Rebound

By TOM KRISHER

It may be a little difficult for the skeptics to believe that Cerberus Capital Management LP can take over the struggling Chrysler Group, keep the same plan and management in place and make enough money to satisfy Cerberus' private equity investors.
Yet that's what Cerberus Chairman, former Treasury Secretary John Snow, repeatedly explained Wednesday during a daylong appearance near Detroit.
"New environment," Snow said when asked by The Associated Press why Cerberus could make the company profitable when its current owner, Germany's DaimlerChrysler AG (nyse: DCX - news - people ), had given up.

Cerberus intends to buy Chrysler in a $7.4 billion transaction that should close sometime this quarter, invest money in Chrysler and take it private. That will allow Chief Executive Tom Lasorda and his management team time to implement their restructuring plan without short-term pressure from Wall Street, Snow said in a speech to the Detroit Economic Club.
"Now they get to run their own show again," he said in the interview afterward with the AP. "Can't ever underestimate that."

Cerberus' business, he said, is to fix companies that are underperforming.
"We have a track record of success at doing those things," he said. "We feel fairly confident that when we've gone through a due diligence process, we know that company and we know the potential. And unless we see the potential fulfilling our investment horizon objectives, we don't buy it."

Snow also said Cerberus plans to keep Chrysler for a long time and has no plans to take the company public again or sell it off once its earnings improve. And he reiterated that no job cuts are planned beyond those already announced by Chrysler.
During the speech, Snow predicted that the U.S. auto industry and Chrysler are poised for a turnaround.

"We want to be there to help the turn and benefit our investors from the turn," he said.
Snow said Cerberus likes LaSorda's recovery plan, which calls for returning to profitability by 2009.

The private equity firm, Snow said, has 150 corporate managers who advise the companies it acquires, including former Volkswagen AG and Chrysler executive Wolfgang Bernhard, who is assigned to Chrysler. But Snow insisted that Bernhard is not running the company.
"They're running the place. They're accountable," he said of LaSorda's team.
DaimlerChrysler - the maker of Mercedes luxury cars - agreed in May to transfer an 80.1 percent stake in its U.S.-based Chrysler unit to New York-based Cerberus.
As part of the deal, Cerberus agreed to invest $6.1 billion in Chrysler and its financing arm and to pay DaimlerChrysler $1.4 billion. DaimlerChrysler would remain liable for certain expenses that could result in it paying Cerberus up to $1.5 billion to complete the transaction.
Cerberus, however, has agreed to take on most of the auto company's $19 billion in long-term retiree health care costs.

On another topic, Snow criticized new fuel economy regulations passed by the U.S. Senate, calling them unattainable under present technology and focused too narrowly on the auto industry as a solution to foreign oil dependence and carbon emissions.
The Senate last month approved legislation requiring the auto industry to meet a combined fuel efficiency standard of 35 miles per gallon for passenger cars and light trucks by 2020. The auto industry vigorously opposed the plan.

In the House, Rep. Edward Markey, D-Mass., is working to advance a bill that would force automakers to meet the 35 mpg target by 2018, two years earlier than the Senate version.
The auto industry supports a separate proposal that would increase the standards to at least 32 mpg - or up to 35 mpg - by 2022.

Snow said depending on the final version, the standards might force Cerberus to raise more capital to fund Chrysler's turnaround. It also could raise the cost of producing vehicles, he said.
The Senate bill could sink the U.S. auto industry, Snow said. In interview, he said he is most concerned about its mileage requirements and that it fails to separate car and truck mileage.
The measure, he said, would force Chrysler to reduce production of profitable pickup trucks and sport utility vehicles in favor of building cars, on which they make less money.
"It makes it tough to be profitable. It gets the auto companies out of alignment with the consumers," he said.
He added that the marketplace should decide what models the companies build rather than Congress.
The Chrysler purchase would expand Cerberus' automotive holdings, which include a 51 percent stake in GMAC Financial Services. It also owns Guilford Mills, the largest automotive seating supplier in the United States, and Peguform Group, a German-based manufacturer of interior and exterior plastic parts used in autos.
On Wednesday, a federal bankruptcy judge approved the $1 billion sale of auto parts supplier Tower Automotive to Cerberus.

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