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"If Chrysler doesn't survive, I'm not sure there isn't a domino effect that will plague the entire country"
The Obama Administration's auto task force is set to report by Mar. 31 on the wisdom of continuing to bail out GM and Chrysler. Recent reports suggest that the deadline may not be D-Day for Detroit, as some have billed it. Instead, it may be the first step in a longer-term look at troubled U.S. automakers—and how much help they should get from the feds. The likelihood that Detroit will get more assistance got stronger on Mar. 19 when the Treasury Dept. released a plan to offer $5 billion in rescue money to auto-parts suppliers. Meantime, a deal under consideration could give Fiat a 35% stake in Chrysler and perhaps open the way for a larger ownership position later. Clearly, this is a defining moment for Chrysler, so I talked with Bob Nardelli, the CEO hired by private equity owner Cerberus to turn around the struggling carmaker.
How would you rate the job the auto task force is doing?
I certainly understand the learning curve they're on, having gone through it myself over the last 18 months. So I give them very high marks.
The point men on that task force are Steve Rattner, a former journalist, private equity firm partner, and Democratic activist; and Ron Bloom, a labor restructuring expert. Have they spent any time with you, understanding the view from Chrysler's corner office?We've had two face-to-face meetings and countless exchanges of phone calls and information. I would say those two gentlemen are totally engaged. They bring unique experience, albeit different experiences, to the table, which is very helpful to our discussions.
Do you truly believe that without Fiat, Chrysler has a long-term future as an independent car company?We do. We have a viable standalone plan. And Fiat enhances the viability of that plan. Fiat (FIA.MI) brings $8 billion to $10 billion of real product advantage. We really need to change the perception out there that Fiat is basically getting a free ride. They're bringing hard technology. They're bringing platforms with proven reliability and durability that not only have a very high market value but will leapfrog [Chrysler] four to five years. And most important, in regards to the environment, they have the lowest-emission engine in Europe.
If the Fiat deal does not go through, is there a chance there could be some kind of merger with GM?No. General Motors (GM) took that off the table, and I don't believe there's any opportunity to reopen that decision. I don't mean to be a broken record, but if a Fiat deal doesn't go through, we have a viable plan. And we would still have the opportunity to do product alliances with Fiat like we did with Volkswagen (VLKAY), Nissan (NSANY), and Mitsubishi. But [the relationship with Fiat] would be on a much smaller scale and wouldn't enhance our ability to pay back the government loan sooner.
How much money does Chrysler need to survive?If you'll remember, when we submitted our original plan, we asked for $7 billion. We received $4 billion in early January. From the time we made our original submission through Feb. 17 we saw unprecedented, continually downward-spiraling sales in the U.S. market. As a result of that, we raised our overall request from $7 billion to $9 billion—$2 billion of incremental dollars. If we receive the $5 billion, that will take care of the financial needs of our standalone plan.
Chrysler is owned by Cerberus, a private equity firm. When a private equity outfit wins big, it doesn't share its profits with the American taxpayer. Why should taxpayers bail out a private equity firm that rolled the dice and is losing fast?You know, there's a lot of mystique about private equity and what it is they do. But to a certain degree, private equity is no different than an aggregator of investors. No different than Fireman's Fund, CalPERS, mutual funds, etc. They collect dollars from investors and are charged with making those investments with a fiduciary responsibility. I think it's unfair to misrepresent their commitment and intention. I think there's a little bit of pent-up frustration about private equity that's being vented in this particular situation.
But people say, look, Cerberus has cut deeply at Chrysler. Where's the growth strategy? How come Cerberus isn't investing more to improve the product line and expand overseas faster?We've committed to 24 new products in the next 48 months, [which] we showed the Washington auto team. We think we'll be out there in a very commanding way with multiple products, with all-electric and range-extended electric vehicles [hybrids with a small gasoline-powered engine]. Also, Fiat has what we don't have, and they are where we aren't. They have 300 dealers in Brazil; we have 30. They have a joint venture in Russia. They don't have competing products here in the U.S. And I know there's a discussion about the U.S. not being interested in small cars. But as the new guy on the block, I cannot let Chrysler be in a position of not having products should fuel prices go back up to $4 a gallon. We cannot get caught in that vulnerable position.
As someone who has been at the top of other industries, what do you think was the biggest mistake the U.S. auto industry made?You're talking about 80 to 100 years of operation. This is a moment in time when I think we all have to face the reality that the system is broken, that we better all come to the party in a cooperative manner and get on with developing [a solution]. Because if we are not successful, the result could be cataclysmic. If Chrysler doesn't survive, I'm not sure there isn't a domino effect that will plague the entire country.
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He Begs to Differ
Can Chrysler survive on its own? In a Mar. 20 interview on Bloomberg TV, Steve Rattner, chief adviser to the Presidential Task Force on the Auto Industry, said that from the figures Chrysler has presented to the government, "there's no real sense that the company would generate meaningful cash flow on a standalone basis." Rattner also said the government is willing to consider Chrysler's proposal of a partnership with Fiat (FIA).
To see the interview, go to http://bx.businessweek.com/chrysler-llc/reference/.