From the Editor: Big Changes for the Big Three?

June 1, 2007
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German-based DaimlerChrysler is selling 80.1% of its stake in its Chrysler arm to Cerberus Capital Management LP, a New York private equity firm, for $7.4 billion. Cerberus also is taking on Chrysler’s $18 billion obligation for health care and pensions for employees and retirees. Daimler-Benz paid $36 billion for Chrysler in 1998.

Chrysler lost $1.5 billion last year, and despite the sale, the losses are expected to continue throughout 2007. Before the sale was announced, there were already plans to cut Chrysler’s work force by 13,000 and close all or part of four plants by 2009. 

While it’s been a bumpy ride, and will continue to be one for some time to come, not all was lost on the Daimler-Chrysler merger. According to DaimlerChrysler’s Web site, the Chrysler Group has made substantial progress during recent years. For example, production hours per vehicle have fallen from 48 hours in 2001 to just more than 30 hours today. Quality has improved by more than 40% during the past six years. Since 2002, more than $10 billion has been invested in new production facilities and technologies.

Dr. Dieter Zetsche, chairman of the board of management of DaimlerChrysler AG and head of the Mercedes Car Group, said, “As a result, Chrysler today is structurally more sound than its North American-based competitors. And with Cerberus as a partner, Chrysler will have the best chances of utilizing its full potential.” But will it? Tom LaSorda, president and CEO of Chrysler Corp., believes so.

In a message to employees, LaSorda states, “As a private (non-public) company, we will be better positioned to concentrate on our long-term plan for recovery, rather than on short-term results. With the financial strength and additional operational expertise brought by our investment partner Cerberus, Chrysler will renew its focus on what has always made us special: the passion, creativity and commitment of our employees, suppliers and dealers to delivering exciting Chrysler, Jeep and Dodge vehicles and quality Mopar parts to our customers.”

Now that Chrysler has gone private and will be shielded from the war cries of shareholders and the scrutiny of the public, can the company return to its former glory behind closed doors? General Motors has been a publicly traded company for nearly a century and Ford Motor Co. went public in 1956. Both of these companies have been subjected to public and shareholder scrutiny that, many would argue, has affected some of the decisions these companies have made. Chrysler will have no such public pressure, but will have the scrutiny of private individuals who will expect a return on their investment.

How will becoming a private company and returning control to American soil affect Chrysler? Could this the start of a new era for the Big Three?



On another note, Steve Wichelecki has joined Quality Magazine as assistant editor. He can be reached at wicheleckis@bnpmedia.com. And join me in congratulating Michelle Bangert in her new role as special projects editor. She can be reached at bangertm@bnpmedia.com.

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