Inside Chrysler's pitch to suitors
The "design dome" at the Chrysler Technical Center is usually a hush-hush place where executives come to critique future models behind closed doors.
But this week, the dome has been turned into a showroom for Wall Street heavyweights looking to buy a car company.
With models such as the next-generation Ram pickup on display, the Chrysler Group's top management has hosted two of the nation's biggest private-equity firms as they analyze a possible buyout of the Auburn Hills-based automaker.
On Wednesday, representatives of the Blackstone Group toured the Tech Center, met with Chrysler CEO Tom LaSorda, and dined with his executive team amid classic cars at the Walter P. Chrysler Museum.
Earlier in the week, buyout experts from Cerberus Capital Management got the same treatment as they kicked the tires on the U.S. division of DaimlerChrysler AG.
For Blackstone and Cerberus, the on-site visits offer a critical first look at the finances, operations and leadership of Chrysler, which was made available for sale last month by DaimlerChrysler.
It's audition time for execs
The meetings are also an audition of sorts for LaSorda and his senior managers if either Blackstone or Cerberus emerges as the new owner of Chrysler.
"This is a very important job interview for management, but the question is whether they're the right team for Blackstone or Cerberus going forward," said Colin Blaydon, director of the John H. Foster Center for Private Equity at Dartmouth College.
Chrysler declined to comment on the visits. Details of the sale process have been closely guarded since DaimlerChrysler CEO Dieter Zetsche said Feb. 14 that "all options" were being explored for Chrysler.
But the appearance of Blackstone and Cerberus in Auburn Hills is an important step toward potential bids for Chrysler.
Armed with tens of billions of dollars in capital to invest, either Blackstone or Cerberus could buy Chrysler outright, restructure its operations, then take the firm public or sell it to another automaker.
Teams from both firms came to Auburn Hills under a cloak of secrecy. Instead of riding in Chrysler vehicles, they were shuttled from hotels and airports to the Tech Center in Ford Motor Co.-made Lincoln Town Cars.
The Cerberus executives spent Monday and part of Tuesday at Chrysler. They met first with LaSorda, who provided an overview of Chrysler's operations and its competitive position in the U.S. and international markets.
Other presentations were made by Eric Ridenour, Chrysler's chief operating officer, as well as by manufacturing head Frank Ewasyshin and chief designer Trevor Creed, according to people familiar with the briefings.
The Cerberus group was also shown several upcoming products, including the prototype for the redesigned Ram pickup -- Chrysler's largest-selling model -- due out next year.
Blackstone's contingent arrived for its two-day visit Wednesday. People familiar with the team said it was led by Neil Simpkins, a senior managing director who serves as chairman of TRW Automotive Holdings, the Livonia-based auto supplier that Blackstone acquired in 2003. Blackstone officials will visit other Chrysler operations today before leaving.
Experts in the buyout field said that first impressions can be vital in the early stages of a private-equity deal. To put their best foot forward, Chrysler staffers displayed trophies and awards for the quality and design of their vehicles.
"A company always wants to show the unique characteristics that makes the business successful," said Scott Meadow, a professor of entrepreneurship at the University of Chicago Graduate School of Business.
Hard numbers are key
Hot designs, however, will ultimately take a back seat to hard numbers such as cash flow, debt obligations and future capital requirements. "The key thing is the predictability of cash flow," Meadow said. "That is the fundamental engine that drives these financial transactions."
Since losing $1.5 billion in 2006, Chrysler has embarked on a restructuring that includes slashing 13,000 jobs over the next two years. In interviews this week at the Geneva motor show, Zetsche said a sale of Chrysler was not certain. But people close the situation told The Detroit News that interested private-equity firms could submit bids by the end of this month.
General Motors Corp. executives also have talked with DaimlerChrysler about a possible Chrysler acquisition, said people familiar with the discussions.
Blaydon said the possibility exists that a private-equity firm might team up with an automaker such as GM to do a Chrysler deal.
"(Chrysler) is not a standard private-equity deal," Blaydon said. "I wonder whether this is one where private equity would need a strategic player to step up."
Both Cerberus and Blackstone have moved aggressively into the automotive sector in recent years.
Besides taking over TRW, Blackstone was a key investor in the expansion of American Axle and Manufacturing in the late 1990s.
Last year, Cerberus agreed to purchase a 51 percent stake in General Motors Acceptance Corp., GM's highly profitable financial services business. Cerberus is also leading an investment group attempting to buy the bankrupt supplier Delphi Corp.
But acquiring Chrysler would be a huge bet on the future of the traditional U.S. auto industry.
For a private-equity player, buying Chrysler is a mega-event on the order of the fabled leveraged buyout of RJR Nabisco in 1988.
Still, investment experts don't believe savvy dealmakers like Blackstone or Cerberus will be dazzled by Chrysler's shiny new models if its balance sheet is lacking.
"These guys are pretty self-disciplined," said Blaydon. "They'll forgo the glamour if they don't think they're doing a good deal."
-- "I have tried to live my life so that my family would love me and my friends respect me. The others can do whatever the hell they please." John Wayne