IPO or Buyout Next for Chrysler?

Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – Now that Chrysler LLC has a new management team, what’s next for the auto maker?

Industry analyst David Cole, chairman of the Center for Automotive Research and co-chairman of the Management Briefing Seminars here, tells Ward’s there are two likely scenarios: An initial public offering that would return the company from private to public ownership, or a strategic alliance with or sale to another auto maker.

In either case, the company must first prove it has put its financial house in order and has a sustainable business plan to produce solid profits, Cole says.

Chrysler officially came under control of Cerberus Capital Management LLC, a New York City-based private equity firm, last Friday. On Monday Cerberus named Robert Nardelli, one-time chairman, president and CEO of Home Depot, as chairman and CEO. Nardelli previously served as a senior vice president of General Electric Co.

Tom LaSorda, previously Chrysler Group CEO, stays on as vice chairman and president.

“LaSorda basically will run the company,” Cole predicts. “Nardelli is responsible for the money; Cerberus puts emphasis on the money.”

Both men, however, will be on the line to get Chrysler’s finances and products up to speed to make it attractive for an IPO or possible sale, Cole says. “A strategic buyer would want to see value, and would (thus) pay more,” he adds.

Cole: Cerberus puts emphasis on the money.

As an outsider like Ford Motor Co. CEO Alan Mulally, a former executive of The Boeing Co., Nardelli brings new urgency to Chrysler’s turnaround drive, Cole says.

“An outsider always brings impetus to change and attacks the bad habits that every organization has,” he says, especially during uncertainty in financial markets, such as is now the case.

Cole doesn’t offer a timetable but says Cerberus already may be looking at alliance partners or purchasers and that there is no shortage of potential candidates.

The euro’s ongoing strength vs. the dollar makes it difficult for European auto makers to earn a profit in the U.S. Currency fluctuations make it necessary “to build where you sell,” says Cole.

Although he doesn’t name a specific company that may look at Chrysler, Cole says outfits such as Volkswagen AG, Renault SA, PSA Peugeot Citroen and emerging auto makers in China and India might see Chrysler as part of a global strategy.

At today’s news conference to introduce Nardelli, LaSorda says he is seeking potential partners in Russia, China and India.

Naming Nardelli to guide Chrysler actually may be “helpful” to Ford and GM because of the widely held view that he’ll attack the same costs the other two are facing, Cole observes.

Nardelli says he already has had talks with United Auto Workers President Ron Gettlefinger and believes he can work well with the union.

Cole says it could be a case of “good guy (LaSorda), bad guy (Nardelli)” in current UAW negotiations.

Armed with the power and cash to make or not make investments – and, thus, save or kill jobs, Nardelli clearly will heard at the bargaining table.