Wilbur Ross: 'No Chapter 11 Here'

The investor extraordinaire speaks out on the Cerberus deal and how it will affect automakers, private equity, and the auto market overall

Like the private equity firm Cerberus that just won the bidding for DaimlerChrylser's (DCX) Chrysler, distressed investing guru Wilbur Ross has had one eye firmly trained on Detroit lately. The man who made his reputation with such down-and-out industries as steel and textiles, has recently been focused on building a sizable auto parts business. In April, he added the Collins & Aikman (CKCRQ) unit, which sells carpet and acoustics for cars, to a series of other acquisitions in the segment, including C&A's European and South American operations, a stake in Lear Corp.'s (LEA) interiors business, and Japan's Mitsubishi Belting Kaseihin. The result is that his International Automotive Components Group North America sells close to $5 billion in auto components each year.

As both a supplier to the big automakers and a negotiator with their unions, Ross has more than a passing interest in the biggest buyout to come down the pike. On May 14, in a phone interview from his New York offices, Ross shared his thoughts on what Cerberus' deal with Chrysler means for automakers and for private equity, as well as his take on the market in general.

Now 69, Ross sold his seven-year-old private equity firm, WL Ross & Co., to British investment firm Amvescap for $375 million last July. But he has neither bowed out nor slowed down since, and still runs the firm. Here are edited excerpts from his conversation with BusinessWeek Senior Writer Nanette Byrnes.

Is this Chrysler deal a turning point?
When we first started going into auto parts a couple of years ago, there was a fair amount of controversy in Detroit whether it would be a good thing to have private equity in the auto industry. Now it's becoming more and more clear that private equity is in every sector, and that question has answered itself. More than any other recent transaction this shows private equity has no boundaries of size, geography, or industry. Private equity has raised hundreds of billions, and the leverage is for all practical purposes unlimited. Chrysler is complicated because it's a consumer marketing situation and a huge industrial restructuring on a scale you wouldn't have expected private equity to take on even a couple of years ago.

Does it say something new about labor's attitude?
The leaders of the big industrial unions, including [UAW President] Ron Gettelfinger, have a very clear understanding of their industry, a very clear view of how it's going to go in the future. They're more experienced negotiators even than private equity because a union leader's most fundamental job is negotiation. They aren't going to yield one penny that isn't absolutely required. But at the end of the day they are realists. Having a gold-plated contract with a company going down the drain isn't the right answer. What you need is a contract with a healthy company. I've been consistently impressed with how well the union people understand the industry in which they operate. Nobody should expect they'll pull one over on the unions.

Do you expect big changes quickly at the carmaker?
Chrysler goes from an unwanted stepchild to owners who want it enough to put $7 billion into it. One thing was clear: Daimler wasn't going to keep putting money in there. Announcing Mr. LaSorda would remain the CEO, that's also a little unusual. As often as not the new group takes a big meat ax to management.