Wednesday, July 11, 2007

Private Equity Jumps A Grand Canyon Full of Shark Tanks (John Snow Edition)

by Tom Bozzo

Former Treasury Secretary John Snow, who had been an overpaid CEO at CSX before his worse-than-undistinguished stint in the Bushist cabinet, has failed upwards to become CEO of the private equity firm that is acquiring a majority interest in the #3 U.S.-based auto maker. Sez he, per the NYT:
[H]is company, Cerberus Capital Management, will fight the Senate [fuel economy] bill because it intends to be a long-term owner of Chrysler.
Because the Domestic Three's problem — especially Chrysler, which is the most dependent on "truck" sales — is that they produce too many marketable, fuel-efficient vehicles, especially given present (and likely future) gasoline market conditions.

And in case you think good information and/or good political acumen is necessarily a strength:
Mr. Snow said Cerberus entered into the purchase agreement expecting that a mild increase in fuel economy standards would be enacted but “not a set of standards that are so one-sided that they can’t be met and which have the risk of sinking the U.S. auto industry.”
Three quick observations:
  1. The Senate standards could be met with a vehicle mix on the large side of what's currently sold in Europe, with existing technologies (modern diesels, direct injection, start/stop systems, hybrid powertrains, tuning cars for efficiency rather than performance).
  2. "Sinking the U.S. auto industry" compared to what?
  3. Snow, who received a PhD in economics from the University of Virginia, is the exception that proves my rule that advanced degree holders are not generally shit-stupid.
With visionary leadership like that, Chrysler is doomed. Just saying.

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Cerberus already owns 51% of GMAC as well.

I have never felt better about the future of Ford, relatively speaking.
The cynic in me wonders whether Daimler-Chrylser is trying to kill birds with one stone with the Smart car: (1) drive down the fleet average in economy standards without bothering to make trucks more efficient; and (2) put up a sacrificial lamb to "demonstrate" that economy standards can't be met with cars that Americans (other than urban 20-somethings) want.
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