Too early to tell the effects Cerberus-Chrysler deal

When the deal between Cerberus Capital Management and Chrysler was announced, speculation ran rampant as to what exactly it would mean to the venerable automaker.

To be honest, it is much too early to tell what the long-term implications of the deal will be. Right now, Cerberus is telling investors and the press that it plans to stay with the automaker for the long-term; that it won’t gut the company or break it up to maximize its investment and share prices, in the manner of the corporate raiders of the 1980s. Back then, the business pagers were filled with stories of big investment companies buying out business of all sorts, only to break them up and sell off the pieces in order to get a quick return on the initial investment. To calm such fears, Cerberus has said it will also honour current union contracts and that it is happy with Chrysler’s existing management team. Again, all of this is to steady the nerves of investors, Chrysler dealers and the North American public that Chrysler is in good hands.

But that is all surface gloss, as Chrysler’s problems run deep; and Cerberus has its work cut out for it. The first will be tackling Chrysler’s product mix. While the company has some excellent products, there are others that fall well bellow acceptable. Chrysler is betting on continuing sales of its popular Jeep line and on the new minivans that should be appearing this fall on dealer’s front door steps. But, the company is still, too indebted to the sale of large trucks and SUVs. That is a problem because the buying public right now is starting to shift away from such vehicles. “Green” is the buzz-word right now, as is fuel efficiency; and a big truck or SUV, no matter how you try to spin it, are not going to be associated any time soon with environmental friendliness or improved gas mileage.

A bigger problem for Cerberus, and one that can’t be fixed by a management change or bashing the unions, is the public’s perception that Chrysler just makes poor quality cars. I suspect that if someone were to pull the average Canadian car buyer aside and ask their opinion about the company’s cars you are likely to hear, “They look nice, but I won’t ever buy one.” One of the biggest reasons consumers have shifted to buying Japanese and import vehicles is because of quality. People rarely complain about shoddy workmanship on a Japanese car or poor customer service; but you can bet people have horror stories about American cars (I have a great story about the experience my father-in-law had with his American car and how it made him switch forever after to Japanese cars). This is not something that can be addressed overnight and why Cerberus had better be honest about sticking with Chrysler for the long term. It will take new corporate thinking, management, products, and most important, the patience to listen to customers once more and rebuild that customer service for Chrysler to rebound.

Maybe Cerberus can take a page from the independents here. Service providers know that competing on price is a losing proposition. What works is quality of work, above-average customer support and a focus on good management and procedures. That is what makes a successful garage today. It’s a lesson that Chrysler and Cerberus should learn as well.