"We remain extremely enthusiastic about our investment in Chrysler. Our underwriting assumed, and fully planned, that Chrysler would incur losses in the near term. Under the leadership of Bob Nardelli, Tom LaSorda and Jim Press, Chrysler is already on track to exceed its multi-year restructuring and recovery plan on virtually all key metrics,” Mark Neporent, Cerberus chief operating officer, said in a statement.
Generally Cerberus prefers to avoid being drawn into any kind of public discussion about its so-called portfolio. Reviving Chrysler, however, is the most complicated project on which Cerberus has embarked in its short history.
“We met with the management team this week and fully endorse their strategic direction and their plan to meet the challenges of the current environment. We are confident that Bob, Jim and Tom are taking the right steps to bring Chrysler to profitability. Our mutual resolve to restore Chrysler to its leadership position as an iconic brand is unwavering," Neporent statement's added.
Cerberus doesn't have to issue any kind of financial reports, making it difficult to gauge Chrysler’s financial position. Nevertheless, Chrysler is now expected to lose something like $1.6 billion in 2007 and will probably lose money again in 2008, according to information seeping out of the company.
The hasty show of support from Cerberus also suggests Chrysler is already missing the services of Jason Vines, the former vice president of communications who resigned in mid-December.
Nardelli, in an interview with The Wall Street Journal, confirmed that he had told a group of employees recently, while Chrysler wasn’t “technically” bankrupt,” it was “operationally” bankrupt.
“Someone asked me, ‘Are we bankrupt?” Nardelli said in the transcript. “Technically, no. Operationally, yes. The only thing that keeps us from gong into bankruptcy is the $10 billion investors entrusted with us,” Nardelli said in the interview.
Talk of bankruptcy in a business as deeply interconnected as the automobile industry can have unfortunate consequences. Suppliers, dealers and consumers are wary of dealing with a bankrupt manufacturer. John Devine, General Motors’ former chief financial officer, told reporters more than two years ago there is no precedent for an automaker filing for bankruptcy and surviving.
Cerberus doesn’t have to disclose a lot of financial information publicly and after Vines’ departure the role of public relations was systematically de-emphasized inside the company. Public relations functions will now be supervised by the executive in charge of human relations and the emphasis will be on product promotion.
The question remains, however, whether product promotion can work effectively without a distinctive and stable public image that can reassure an increasingly finicky public.
GM more or less tried it the Cerberus way back in the 1990s under Ron Zarrella. The effort failed miserably because GM could never seem to tell a consistent story, while critical parts of the message simply got lost.
Meanwhile one analyst, who asked not to be identified, suggested that Cerberus underestimated how difficult it might be to turn Chrysler around.
The situation has been complicated by the slowdown in industry sales that began this fall. Sales are not expected to improve until the second half of 2008 at the earliest, according a new report from IRN Inc. of Grand Rapids, Mich., released Friday.
Nardelli announced a series of sweeping cuts back in November but rumors of more layoffs have increased in recent weeks. Chrysler officials said this week no specific cuts are planned at this point.
In addition, reports are suggesting Renault/Nissan is now interested in bringing Chrysler into its global alliance. Cerberus apparently is interested enough to have held talks with executives from Renault/Nissan, according to some reports.