Will private ownership be the model that saves the struggling U.S. auto industry?

On a recent fall day the two new bosses at Chrysler traveled to the company's test track in Chelsea, Mich., an hour's drive west of Detroit. The two--Chief Executive Robert Nardelli and Vice Chairman James Press--were to spend the entire day poring over every vehicle in Chrysler's lineup. It wasn't pretty. There was the cheap-looking plastic on the dash of the Dodge Caliber. A poorly placed cruise control switch on the Chrysler 300. Windows that rolled down herky-jerky on the Jeep Grand Cherokee. But what was remarkable about this visit was that by the end of the day Nardelli had ordered more than 200 engineering changes to fix the array of problems and make improvements, at a cost of at least $100 million. The armrests and door grips would feel softer. Electronic windows would get one-touch switches. And yes, that cruise control button would be relocated. No lengthy meetings. No black-bound briefing books. Just get it done.

Chrysler has been running like a car with its accelerator stuck to the floor ever since it was bought last August for $7.4 billion by private equity firm Cerberus Capital Management. Billion-dollar decisions that once took months to make are now made in minutes. Engineers are told to speed up quality improvements. Attention is being paid to making dealers happy.

All this amounts to a test of whether private owners can revive a stuck company in an industry wedded to stale ways and with weakening sales. Chrysler just announced that it would make even deeper cuts in its workforce and eliminate work shifts at several factories. After multiple brushes with death, it's no exaggeration to say this could be Chrysler's last chance.

The challenge--and prospects for riches--were among the reasons top-shelf talent like Press, Toyota Motor (nyse: TM - news - people )'s U.S. boss, and Deborah Wahl Meyer, Lexus' marketing chief, jumped ship to join the $62 billion (sales) company. Even Chrysler's former chief executive, Thomas LaSorda, shoved aside by Cerberus to make room for Nardelli, has stuck around. Rather than storm off, he volunteered to pack up his corner office and move across the hall at the company's Auburn Hills, Mich. headquarters. Everyone wants to see the results of this experiment.

Cerberus' purchase of Chrysler ended the automaker's nine-year, cross-cultural marriage with Germany's Daimler-Benz. The investment firm, whose $26 billion portfolio includes a hodgepodge of more than 50 companies, including several on our Largest Private Companies list, paid $7.4 billion for an 80.1% stake in Chrysler. (Daimler kept the remaining 19.9%.) The money went into Chrysler, not Daimler. Cerberus invested $5 billion in the auto business and pumped $1.5 billion into Chrysler Financial, the automaker's lending arm. The complex transaction resulted in a $680 million cash outflow for Daimler, whose acquisition of Chrysler in 1998 was valued at $36 billion. In essence, it cost Daimler that much to get Cerberus to take Chrysler (and Chrysler's health care liabilities) off its hands.

Cerberus got a company dependent on a narrow range of sales (trucks and sport utility vehicles), behind on key technologies, burdened by high U.S. labor costs (though the new labor contract with the uaw includes some savings) and having little presence outside of North America. Still, says former Treasury Secretary John Snow, Cerberus chairman: "There's a sense at Cerberus that U.S. manufacturing in general, and the auto industry in particular, continue to have a bright future, not only in America, but in the global economy." Cerberus' founder and chief executive, Stephen Feinberg, views saving Chrysler as a matter of national pride. "Feinberg is in this for the country. He sees this as a way to pay back, and so do I," says Press, 61, who spent 37 years at Toyota, pounding Detroit automakers, before joining Chrysler in September.

Patriotic fervor aside, for Cerberus and the people it hired to run Chrysler the money potential is huge. In a good year, such as Chrysler had in 1998, the company generated $5 billion in earnings before interest, taxes and depreciation. "There is a large handful of people who can get very, very wealthy off of this," says industry consultant Maryann Keller, a onetime prominent Wall Street analyst. "They realize, 'If I get this wrong, it will cost me millions, because I am an owner of this company.'" Cerberus plans to give hundreds of other managers a share in the company as well, says Nardelli.

Cerberus says it's committed to Chrysler for the long term, but it is not in this business for its health. It will likely take Chrysler public again some day. AerCap (nyse: AER - news - people ), an aircraft leasing and financing company headquartered in the Netherlands, is one success. After investing $370 million in a 2005 buyout, Cerberus helped it recapitalize and fix its business model, then did a 2006 initial offering, turning its investment into $1.5 billion.

As a private company Chrysler has the latitude to make long-term decisions that would have been difficult, if not impossible, to justify in a world where shareholders punish companies for missing earnings projections by a penny per share. For example, Chrysler is selling $1 billion worth of unneeded real estate at what appear to be motivated-seller prices. It needs the cash.

Three days after closing the deal Cerberus installed Nardelli, the controversial former boss of Home Depot (nyse: HD - news - people ), as Chrysler's chief executive. Known for his imperious attitude and enormous pay package, Nardelli, 59, alienated customers and employees alike with his push to centralize Home Depot's store operations. Yet on financial metrics (other than the share price), Home Depot's performance was strong, at least until the housing industry slowed.

At Chrysler, Nardelli started immediately poking his nose everywhere. He drives a different car to and from work each day, and meets one of Chrysler's chief engineers in the company garage each morning "to go over a few items." He asks piercing questions that put employees on the defensive, often challenging the status quo. Why, for example, he wants to know, aren't we improving the air-conditioning systems in all our vehicles, rather than chasing complaints on one model? His probing style grates on some. "You start to wonder, 'Is anything okay with this guy?'" said one senior manager. "This is a guy who could find a better way to create the earth."

"With me, it's either a quick yes, or a quick no--never a slow maybe," Nardelli says. So in September, when U.S. car sales slowed and Chrysler's inventory began piling up on dealer lots, rather than keeping the factories humming and then boosting discounts to move the excess vehicles--a strategy that drove Chrysler into deep financial trouble in 2006 and at other times in its history--Nardelli decided to shut down six factories until the glut disappeared.

Early in November the company announced over 10,000 additional layoffs with the elimination of some work shifts at several plants. Nardelli plans to cut production by 82,900 vehicles in the fourth quarter, or 14%, and says Chrysler will end the year with 100,000 fewer cars in dealer inventory than the year before. "That's over a $1 billion cash flow hit," explains Press, as the company will not have those cars to sell to its dealers. "That's not an easy decision to make in these times, by a company in our situation, especially with the short-term issues that we're dealing with."

It was Nardelli's call, but as with any important capital or personnel decisions, Cerberus' top executives had a hand in it. The decision to cut fourth-quarter production was made in a seven-minute conference call, according to Press. "They said, 'Boy, you're doing the right thing. Do it quick. Do it early. Don't hide that stuff'."

During the DaimlerChrysler (nyse: DCX - news - people ) regime, proposals required the preparation of thick binders ten days in advance of a presentation to senior management. Big decisions were kicked up, through a series of management committees, and eventually, across the Atlantic to the company's German board of management. Nardelli put an end to the binders and committees. In his Monday staff meetings with a dozen executives, issues are pasted on the walls and decisions made on the fly.

One of the hot topics is how to overhaul Chrysler's vehicle lineup. With so many overlapping models the company often ends up competing with itself, Press acknowledges. Some examples: the Jeep Patriot and Jeep Compass compact SUVs, or the Dodge Durango and Chrysler Aspen SUVs. At the same time it is weak in hot segments, like crossovers--vehicles that combine the softer ride and better mileage of a passenger car with the four-wheel drive of a sport utility vehicle. Nor, save for a few vehicles, such as its minivans, do Chrysler's models stack up well against industry leaders such as the Toyota Camry and Honda (nyse: HMC - news - people ) Accord.