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June 19 2008

Cerberus Capital Management, the US private equity group, is hunkering down for the long haul at Chrysler, admitting it may be a decade before it sells the struggling carmaker acquired in a $7.4bn deal that epitomised last year’s bull market.

Timothy Price, managing director of Cerberus, told the Financial Times that his group often owned companies longer than rivals before seeking an exit.

“We have a model that is buy, fix and hold,” he said. “It is not a problem for us to have a 10-year holding period.”

Shrugging off the sharp fall in car sales in the US, which triggered a 25 per cent drop in sales of its Chrysler, Dodge and Jeep brands in May compared with a year earlier, Mr Price said “everything is going better than expected”.

Chrysler was forecast to lose $1.6bn last year following a $1.4bn loss in 2006, when it was still owned by Germany’s Daimler. For many, the purchase of the marque has become the poster boy for private equity’s battle to turn round troubled companies bought during a credit boom before markets nosedived last summer.

However, Mr Price declined to say when Chrysler would stop burning through cash and return to positive cash flow.

Chrysler ended 2007 with $9bn of cash on its debt-free balance sheet, and Bob Nardelli, who took over as chief executive after his controversial departure from Home Depot, told the FT it was still “very close” to this.

Denying that Cerberus had any regrets about buying Chrysler and insisting that, given the choice, it would still do the deal, Mr Price said: “The industry is cyclical and demand does not drop 20 per cent every year in the US auto market.”

Chrysler is buying more components for its vehicles outside North America, both to bring down costs and to help establish a foothold in overseas markets where it currently has little or no presence.

In recent years, Chrysler’s international strategy has focused on expanding exports from plants in North America and, to a lesser extent, Europe.

Although sales outside North America reached a record of 21,500 vehicles in May, that was still only 12 per cent of sales in the US and Canada.


LINK:FT.com / Companies / Autos - Cerberus prepares for Chrysler ‘long haul’
 
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