Commentary

While everyone else is focused on Daimler selling Chrysler, I’m trying to figure out who Cerberus is going to flip it to. You know this crowd did not buy Chrysler to hold it. That’s not what they do.

The private equity firms that dabble in the auto industry buy distressed companies at bargain prices with the intent of selling them later at a much higher price. That is precisely what Cerberus plans to do with Chrysler.

But first it has to wrench on it a bit, then polish and buff it up. We can expect management to concentrate in four areas:

Getting Chrysler’s labor costs to match Toyota’s in North America.

Putting those savings into the product, because cheap plastic interiors are not competitive no matter how handsomely designed or crisply molded.

Quickly pruning the U.S. dealer base.

Expanding aggressively overseas mainly through U.S. exports.

Chrysler is not a basket case and it is not going to take long for Cerberus to make it profitable. In two automotive design cycles it should be generating a steady $2 billion a year in profits. The upside could even be $3 billion.

Of course, two automotive design cycles translate into at least seven years. So that means Chrysler is going to go “dark” on us for a while, at least from a financial standpoint.

That’s because by taking Chrysler private there will be no more quarterly reports, no more earnings guidance, no more Wall Street pressure, and especially none of that Sarbanes-Oxley gobbledygook.

This also makes it much easier to face down the United Auto Workers union. That’s why I think we’re probably headed for the most important UAW contract negotiations since the 1930s.

Even so, it’s not going to be easy. Especially because I’m not sure these private equity guys are as smart as everyone makes them out to be.

Several years ago a number of pretty smart people were telling me how David Stockman, President Reagan’s former budget director, had a brilliant new economic model to use private equity to make a lot of money by buying and aggregating money-losing companies.

They boasted how they were going to show the auto industry new levels of financial discipline. But all they ended up doing was learning the intricate details of what happens when you go Chapter 11.

Stockman now is facing criminal charges for allegedly defrauding investors.

One of the first problems Cerberus is going to run into is the 19.9% ownership of Chrysler that Daimler is holding on to. Cerberus executives will choke when they see how much Mercedes charges for the parts it sells Chrysler.

That’s about the time they’re going to discover Chrysler doesn’t have much in the way of research and development anymore, either. All the really advanced stuff was being handled by Mercedes.

Nonetheless, Cerberus should be able to make Chrysler profitable.

So the real question is, who gets it? It sure would make a tantalizing acquisition for someone such as Fiat, PSA, or (gulp!) one of those Chinese or Indian upstarts. I wonder who Cerberus has in mind.

John McElroy is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit, and Speed Channel.