Newspaper article The Christian Science Monitor

At Chrysler, Private Equity Gives Nardelli Greater Freedom

Newspaper article The Christian Science Monitor

At Chrysler, Private Equity Gives Nardelli Greater Freedom

Article excerpt

The survival plan at Chrysler sounds a lot like those of its peers: roll out new vehicles, rebuild customer confidence, pare labor costs, shed peripheral assets.

Even installing a new chief executive officer from outside the automotive industry - as Chrysler has done this week - is a strategy already employed by Ford Motor Co.

Yet Chrysler's hoped-for recovery hinges on something that sets it apart from its automotive brethren in Detroit and worldwide: private ownership.

Its rivals are traditional corporations, with shares trading on public exchanges. Chrysler, as of Friday, is under the wing of a private investment company, part of a trend toward "private equity" deal-making that's been expanding steadily for five years.

These closely held investor partnerships enjoy less regulation than public corporations, and have no need to curry favor with shareholders. Cerberus Capital, Chrysler's new owner, is banking on the notion that private ownership will allow for more creative strategy, nimbler execution, and freedom from constraints such as the obligation to report earnings each quarter.

But will it work? Suddenly Detroit is a petri dish for discovering whether the trend of private buyouts brings unique managerial benefits to the economy. Chrysler faces challenges that are similar to those of Ford and General Motors. Chrysler will face them from a different standpoint.

"This is not going to be business as usual," says John Wolkonowicz, an auto analyst at Global Insight, a consulting firm in Lexington, Mass. "I think Cerberus wants to blaze a new trail here."

The appointment of Robert Nardelli as Chrysler's new CEO is one sign of the risks Cerberus is willing to take on this new trail. He exited his last post, as head of the retail giant Home Depot, under a cloud of shareholder outrage over his high pay and unresponsive demeanor at annual meetings.

Since the appointment was announced Monday, many analysts questioned whether Mr. Nardelli is well-suited to lead Chrysler's turnaround.

Certainly, many public corporations would have shied away from a leader with a reputation for frosty shareholder relations.

Still, before Home Depot, he was a rising star at General Electric Co. and a contender for the top post there.

"He's a real get-it-done, take-no-prisoners kind of guy," Mr. Wolkonowicz says. With Chrysler in need of a major overhaul, from labor contracts to alliances, "he may be the guy to make this all happen."

Even if Chrysler succeeds, private equity isn't about to supplant the publicly traded corporation as the dominant corporate model. And no single deal will define the future of buyout firms such as Cerberus, headquartered on Park Avenue in New York. But Chrysler may be the most prominent target company in the current acquisition wave, and the transfer of ownership comes at a pivotal time. …

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