For reasons that defy both logic and recent history, Cerberus Capital Management, a New York–based private equity firm, has purchased a controlling interest in Chrysler for nothing, while taking the German automaker Daimler off the hook for almost $20 billion in pensions and health-care benefits. The sale comes about nine years after Daimler bought Chrysler for $36 billion in hopes of restoring the company to its former glory. (The biggest joke of all is that Kirk Kerkorian, Chrysler’s then-biggest shareholder, thought Chrysler had made a bad deal, and went on to sue DaimlerChrysler. Now he’s taking a big stake in General Motors—maybe a good short sale.)
This latest sale—if you can call it that—is being hailed as a milestone in the storied history of American automaking. Chrysler, once an icon of mid-century American economic power, will become the first privately owned U.S. car company. The question for Chrysler’s new owners is simple: Why do they think they can rescue the company when Daimler, one of the world’s smartest automakers, clearly could not?
This is not just a question about Chrysler’s future; it’s a question about the entire U.S. auto industry. Chrysler was in bad shape when Daimler bought it, and has only gone south since. Meanwhile, it seems only a matter of time before the Ford Motor Company goes broke, thanks in part to William Clay Ford Jr., the great-grandson of Henry Ford, and his family counterparts, who have managed to fritter away their ancestor’s legacy.
This is how great companies fail. When executives are more interested in fattening their wallets than making good products, when nonentities replace visionaries, when mediocrities ride the Peter Principle to power, a fall will inevitably follow.
Not so long ago, the Big Three automakers were the envy of the world. General Motors had 50 percent of the U.S. auto market, Ford 25 percent and Chrysler 15 percent. By the 1970’s, however, American consumers came to realize that companies like Toyota, Honda and Daimler made better cars. Amazingly enough, they did so not by shortchanging their workers, but by collaborating with them. The results speak for themselves: Toyota recently replaced General Motors as the world’s No. 1 automaker. Take a stroll along any avenue in Manhattan and count the number of American cars parked on the street.
One big reason behind the collapse has been the talent drain. It used to be that the whiz kids graduating from elite business schools such as Harvard, Tuck and Wharton dreamed of going to work for G.M., Ford or Chrysler. Many went first into the Air Force, such as Robert McNamara and Arjay Miller, where they became hot shots, and then proceeded on a path to the top with the Big Three. That meant a fancy house in Grosse Pointe, a high salary and robust retirement package. Today, the B-school superstars dream of going to work for a hedge fund.
Executives at Cerberus should study up on this sad history. It is hard to understand why Cerberus installed John Snow, a former third-rate Treasury Secretary, as its top dog. They apparently believe he can succeed where Daimler failed. Lots of luck.