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Chrysler's Image Problem is a Reality for Cerberus

Chrysler is in a bad way. Sure, there are the basic metrics that don’t bode well for the automaker. Sales were down around 36% in June, the biggest decline in the industry. It just made use of a line of credit from minority owner Daimler (yes, it’s true it had to use it or lose it). It’s lineup is way way out of line with the current trend toward smaller, more fuel efficient vehicles.

But what really dogs Chrysler is the widely held, and much combated (by Chrysler executives and those at majority owner Cerberus Capital LLC) that the company is merely being run for the time being for an eventual break-up and sell off.

Merrill Lynch’s new Car Wars report says, “We believe …that this is an active decision by new owners [Cerberus] to rationalize the product portfolio in advance of a break-up/sale.”

Not that Merrill is always right. But when you have a firm as stealthy, private and dark as Cerberus, the “Dick Cheney” of private equity firms, running a company as public as an auto company, analysts and media are bound to expect the worst and project the darkest motives.

And here is where it becomes a real problem for Chrysler. The buying public is starting to get the idea (admittedly from the media) that Chrysler simply isn’t going to be around much longer. This economic downturn, which includes the rising cost of gasoline and oil, is worse than any of the so-called financial experts forecasted last year. One executive who was involved in Cerberus’s purchase of Chrysler tells me that the firm’s worst-case scenario calculations for gas prices, auto sales and the economy, built into the decision to by Chrysler, have already been surpassed.

The worse the economy gets, and the more people get the idea that Chrysler won’t be around in its current form, the less likely they will be to want to sign up for a four, five or six year loan on a new vehicle. Sure, many understand that even if Chrysler is broken up, you will still be able too get your Chrysler, Dodge or Jeep serviced. Heck, you can still get Peugeots fixed in the U.S. But the idea that the company may go bust plants a subliminal red light in our consciences. Why, I ask as I peruse and the like for a new car I need to count on, would I go with a company whose ownership is likely to be at the four corners of the world in a year or 18 months. Jeep to India’s Mahindra & Mahindra or Renault? Dodge Trucks to Nissan? Chrysler to some Chinese automaker sap silly enough to want to own the Chrysler brand alone.

Chrysler and Cerberus flat out deny the company is being prepped for a fire sale. But let’s be real. These are private equity owners. Their only goal is to make a bunch of money, and not lose money for themselves and their investors. That is looking increasingly difficult to pull off.

AT GM and Ford, the goals are different. Sure, they want to make money. But the executives at both companies, the Ford family, and shareholders, are motivated to perpetuate the corporations. They will do anything and everything to keep the companies together until the economy turns good again. Cerberus has absolutely no such motivation.

If the cash burn gets too bad at GM or Ford, they have options, all of which are designed to keep the companies going. If it gets too bad at Chrysler, the only real option Cerberus has is to sell the assets piecemeal. And by the way, they will do that before the losses get too great so they don’t get hammered on the prices. They won’t want to appear too desperate when they sell.

This is the scenario Cerberus signed on for when they bought Chrysler. They ought not to act so indignant when reporters and analysts point out that reality, which is darkening for the automaker with every monthly sales report.

Perhaps they realize that they have a credibility problem. Not long after Cerberus took over and named Robert Nardelli CEO, the company created a situation at the company that forced Jason Vines, Chrysler’s top communications manager, to leave the company. Vines was asked to report to the human resources director, not Nardelli. And he was to be undercut by Nardelli’s own PR man in New York. Nothing doing for Vines, who left the company.

The auto industry media know there are few people in this field who would be better at guiding a Cerberus and Chrysler through such troubled waters as Vines. Left behind was a dispirited group of communications staffers working for a company and group of senior managers who gave them no sign that they respected the vital function of PR at an auto company. Recently, they seemingly realized their mistake, and searched for a new vp of communications whose awful job it will be to convince reporters, Wall Street and the buying public that Cerberus is in this for the long haul with Chrysler.

The search ended by promoting an internal staffer who still reports to HR.

Good luck with that.

The Epic Hack

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