Cerberus to Depend on Auto Experts Within Firm to Make Deal Work
Cerberus Capital Management, which agreed to buy a majority stake in Chrysler for $7.4 billion, has been loading up on auto assets and industry experts but still faces major challenges in turning the struggling auto maker around, CNBC's Melissa Lee reports.
“In fact, a couple of top guns recently hired from the industry are regarded as hard-charging, cost-cutting managers who will be key to making this deal work,” Lee said.
Cerberus, a private equity firm named after the three-headed hound that guarded the gates of hell in Greek mythology, is run by financier Stephen Feinberg. Armed with about $16 billion of capital, Feinberg is taking a huge gamble, many analysts believe.
"Chrysler now has a one-in-five change of being around 10 years from now, which is still a lot better chance than it had yesterday," Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business, told the AP. "Cerberus might be the only one out there that can do it. They have the management experience, a record of successfully cutting costs, and is willing to bet real money you can make cars in North America successfully."
Cerberus was founded in 1992, and has specialized in buying distressed companies and then turning them around through heavy cost-cutting. With some $25 billion of assets under management, the firm owns about 50 companies with combined revenue of more than $60 billion, according to its Web site.
Those companies include a broad swath of industries, including everything from Formica to Air Canada. In the auto industry, Cerberus owns Guilford Mills, the largest automotive seating supplier in the U.S., and Peguform Group, a German-based manufacturer of interior and exterior plastic parts used in automobiles.
“With its holdings, Cerberus has the potential to reshape the auto industry,” CNBC's Lee said. “The question is legacy costs still held by Chrysler. Will there be enough change to turn Chrysler around?”
Wolfgang Bernhard may be the most important player in the Chrysler deal, Lee said. He’s new to Cerberus, but served as a high-ranking executive at both Chrysler and Mercedes-Benz. He also worked at Volkswagen and was seen by many as a top candidate to run that company until he was forced out this year, Lee said.
David Thursfield, now a senior member of Cerberus’ automotive and industrial practice, is a veteran of Ford. He cut costs at Ford, but didn’t hit it off with the company’s chief operating officer or suppliers. He left Ford in 2004 and quickly joined Cerberus.
Cerberus Chairman John Snow, the former Treasury secretary, said the private equity firm believes in the strength of U.S. manufacturing.
Lee said there could be synergies in joining Chrysler’s financial arm with Cerberus’ 51% stake in GMAC, formerly the financing arm of General Motors. This could be the foundation of a strong player in the auto-financing sector.
Richard Steinberg, president and chief investment officer at Steinberg Global Asset Management, told CNBC’s Squawk Box that the deal clearly benefits Daimler.
“I think Daimler is thrilled,” Steinberg said Monday. “I think the autoworkers will be happy to have (the company) back in American hands. I think the concessions were probably in place prior to this (deal) happening. The problem is that for all the American car markers, you have to be able to build cars that work and cars that people want to buy. It’s still unclear if the American manufacturers can get their mojo back.”