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Cerberus's Chrysler Buy Helps It Mimic GE, Snow Says (Update1)

From bloomberg| May 18,2007

Cerberus Capital Management LP will take a ``deep interest'' in operations at newly acquired Chrysler, the way a conglomerate like General Electric Co. stays engaged with its holdings, Cerberus Chairman John Snow said.

``We're making a bet on the auto industry,'' Snow, a former U.S. treasury secretary, said yesterday in an interview. ``We'll want to meet with the management teams to explore opportunities for achieving better results.''

Snow said New York-based Cerberus's automotive management team will consult on issues from labor talks to payroll, and a person will be appointed to act as a liaison between the buyout firm and Chrysler.

His comments fleshed out the role Cerberus envisions for itself at Chrysler after it agreed on May 14 to buy an 80.1 percent stake in the company from DaimlerChrysler AG for $7.4 billion. ``Cerberus takes a deep interest in how the business is doing,'' said Snow, 67. ``We're more like a General Electric.''

One link between Cerberus and the fourth-largest U.S. automaker may be Wolfgang Bernhard, an adviser to the buyout firm and a former Chrysler chief operating officer.

``When we want to draw him in, we will use him,'' Chrysler Chief Executive Officer Tom LaSorda said this week.

Listening to LaSorda

Snow said he will listen to LaSorda on whether more job cuts need to be made at Chrysler, where the CEO began a restructuring push in February that includes shedding 13,000 workers through buyouts and closing an assembly plant.

``We're very supportive of management,'' Snow said. ``With this new model, we will provide a closer alignment between the management and the owners.''

Chrysler has gotten an overwhelming response from workers ready to leave the company, according to LaSorda. Paring the workforce, which was at 81,220 workers as of March 31, is among Chrysler's efforts to return to profit after a $680 million 2006 loss.

Snow declined to say whether he would urge LaSorda to expand the buyout program. He also wouldn't comment on union talks later this year with the United Auto Workers. He said he will follow LaSorda's lead in the discussions.

The union balked in 2006 at giving Chrysler the health- benefit concessions granted to Ford Motor Co. and General Motors Corp. The new Chrysler Holding LLC will have $19 billion in retiree health-care liabilities once it is turned over to Cerberus.

Reviving Sales

A health-care deal may give Chrysler a financial boost as it tries to revive slumping sales.

First-quarter unit sales fell 8 percent to 642,239 as consumers bought fewer Chrysler models and the automaker worked to limit the number of vehicles bought by fleet operators. Fleet sales are usually less profitable than those to retail buyers.

Snow said the U.S. automakers, even after losses totaling more than $15 billion in 2006, are still ``a very fundamental, basic industry and will remain an important part of American industry.''

Cerberus's other automotive assets include a 51 percent stake in GMAC LLC, GM's former finance arm. It also owns German plastic parts maker Peguform GmbH and has offered to buy bankrupt Tower Automotive Inc., a major supplier of frames and bodies to Ford Motor Co., among others.

Success with Chrysler may open the door to more private- equity investments in the auto industry, Snow said. ``This is a transaction that will be closely watched by a lot of people,'' he said.

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