From The Blade, Toledo, Ohio

The $7.4 billion buyout of DaimlerChrysler AG’s Chrysler Group by Cerberus Capital Management LP is a watershed for the struggling U.S. automotive industry. For the first time in decades, a domestic auto company will be operated in private, not under the scrutiny of shareholders.

It is unknown how the buyer will handle Chrysler and its premier Toledo, OH-born Jeep brand, but the purchase will enlarge Cerberus’ stable of more than 45 firms.

Its holdings range from 250 Burger King restaurants to Fila athletic shoes and footwear to Green Tree financial services to Spyglass Entertainment movie company, which made "Sea Biscuit" and "The Sixth Sense," to rental car companies National and Alamo.

Cerberus has raised $6.1 billion in capital over the last five years, according to Private Equity International magazine, has a total of more than 250,000 employees, and generates $60 billion annually in revenue.

Private equity firms have a reputation of splitting up acquired businesses to make money, but the chairman of Cerberus, John Snow, said that is not his firm’s mission.

"A great virtue of private equity firms is that we are able to allow management to implement their long-term plans, which often is hard to do, unfortunately, in public companies," he told The Blade last week.

"We have a fiduciary duty to our investors. We invest in businesses that we think are undervalued, and, therefore, have the potential to do much better."

Cerberus has acquired auto parts firm GDX Automotive, Farmington Hills, MI, as well as a majority stake in General Motors Corp.’s GMAC financing unit. In March, the firm agreed to buy beleaguered auto parts maker Tower Automotive Inc.

Gerald Meyers, a University of Michigan business professor and retired auto industry executive, said the diversity of Cerberus’ holdings is confusing.

"I think they are nuts, to put it bluntly," he said. "I can’t make any sense about the collection of companies they have put together. There is no consistency in what they have done.

"We used to call these conglomerates."

The track record of Cerberus shows it will cut workers after it buys an underperforming business.

For example, West Coast supermarket chain Albertsons closed 140 stores and laid off hundreds of workers after Cerberus bought the grocer for $17.4 billion last year.

Also, the private equity firm closed 82 Mervyns department stores in four states, including Michigan, shortly after it bought the chain for $1.7 billion from Target Corp. less than two years ago.

Such actions don’t necessarily indicate what it will do with Chrysler, because it has relatively few auto industry holdings now.

The founder and chief executive officer of Cerberus — a name that comes from the three-headed dog that guarded the gates of hell in Greek mythology — is Stephen Feinberg, who has a reputation of being media-shy.

When the mega-deal was announced this month, Feinberg stayed in New York and sent Snow, who is a former U.S. Treasury secretary, to Germany to share the stage with DaimlerChrysler’s Dieter Zetsche and Chrysler CEO Tom LaSorda.

Snow, 67, a former chairman and chief executive officer of CSX Transportation, said the restructuring begun last year at Chrysler will continue.

"We are supporters of the plan that Tom LaSorda and the management team [at Chrysler] have put in place. This restructuring plan is really the future direction of the company," he said.

Meyers, who was chairman and chief executive officer of the former American Motors Corp. from 1977 to 1984, said Cerberus will take whatever measures necessary, including selling off divisions, to turn around the financially struggling company.

Chrysler lost nearly $1.5 billion in 2006 as inventories piled up and consumers shifted away from the light trucks and sport-utility vehicles that accounted for nearly 70 percent of its sales.

"There will be a honeymoon, but it will be a honeymoon that is shorter rather than longer," Mr. Meyers said.

The firm likely will give the automaker a "reasonable period" of time, "say three, four, but no more than five years," to make things happen, or "they will cut it out as fast as they went into it," he explained.

He added: "Private equity is the cream of the capitalistic system. They go in where there is trouble and offer promise."

Cerberus was founded in 1992 by Feinberg. A trader at Drexel Burnham Lambert Inc. at the time, he invested $10 million of his own money to launch the firm, which this month was ranked by Private Equity International as the 34th-largest private equity company in the world. It has about $16.5 billion under management in funds and accounts.

Among the known directors of the company is former vice president Dan Quayle, who reportedly is using his political connections to assist in international acquisitions.

No doubt changes will be made at Chrysler, said James Brock, professor of business at Miami University, Oxford, OH. "I think it will be very interesting to see whether being freed from the stock market and all the things that go along with being a publicly traded corporation might actually enable the organization to function better," he said.

"We will just have to take a wait-and-see attitude to determine if Cerberus turns out to be an evil empire or becomes the knight rescuing a damsel in distress."

Chrysler, the U.S.-based unit of the German automaker that will retain Mercedes-Benz, announced in February that it will trim 13,000 employees in three years, will close plants in Newark, DE, and will cut shifts at plants in Warren, MI, and St. Louis.

The firm owns Toledo Jeep, with more than 4,400 Chrysler and supplier workers, and Toledo Machining Plant in Perrysburg Township, with 1,400 employees.

Erich Merkle, an industry analyst with auto consulting company IRN Inc. in Grand Rapids. MI, said Cerberus will refrain from instituting changes in the immediate future. "I don’t think we are going to see any irrational changes take place," he said.

Some analysts predict that a successful turnaround of Chrysler will involve Toledo Jeep continuing to hum with the Jeep Wrangler, Jeep Liberty, and Dodge Nitro.

"I think Jeep is the crown jewel of the Chrysler Corp., and I think [Cerberus] knows that," said Mr. Meyers, who was a manufacturing vice president at American Motors when it owned Toledo Jeep. "Any corporation would be delighted to have that brand of vehicles that are made at the Toledo plant. It is a great asset."

Merkle cited the scheduled launch this year of new minivans and next year of a new full-size pickup to help the automaker’s sales.

"Chrysler is on the cusp of its biggest launch of the decade," he said. "I think Chrysler will be turning itself around on the product side, and next year Cerberus will come out of this looking good and look like they know what they are doing on the car side."

Copyright (c) 2007, The Blade, Toledo, Ohio