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Why Buy Chrysler?


Cerberus, the private equity firm that's buying Chrysler, has been trying to make an inroad into the auto industry for years. A company which buys troubled corporate castoffs now appears to be assembling one of the world's biggest automotive companies. It's put together a group of auto-related assets, including General Motors's former financing unit and the company that owns the Alamo and National Car Rental chains. Which raises the question whether Cerberus can save Chrysler.

We put that question to Colin Blaydon, who teaches at the Tuck School of Business at Dartmouth.

Professor COLIN BLAYDON (Dartmouth): What they are good at doing is really transforming companies. That's what they're going to be looking to do here. But it's very different from the big private equity deals we've been seeing recently.

INSKEEP: How so?

Prof. BLAYDON: Well, the reason we've gotten to know these firms, and they've been in the news so much lately, is because they have been able to raise so much money and buy very big companies. There is not a lot of money being put on the table for Chrysler.

INSKEEP: What can a private equity firm do with Chrysler or perhaps to Chrysler that Daimler was unable to do with them?

Prof. BLAYDON: One thing we have been seeing in the last few years is that the private equity model seems to be very effective. And by that I mean take a company, have a very focused board of directors that can make tough decisions and pay close attention because it's their investment money in it, and then put in place an incentive structure for the management team and the workers that really get them focused and have a big stake in the transformation of the company. That's something the big auto companies have not done.

INSKEEP: Can I just ask one more question? In and among all these efforts to cut costs and restructure the company and prepare possibly for going public again at some point after things have been restructured, do you think that the new executive team is going to have time to think about, well, making and selling better cars?

Prof. BLAYDON: They're going to have to. Because if they do not create value that's recognized in the marketplace, they're going to fail. There is a broad misunderstanding about these private equity firms that, you know, they strip assets and steal away in the middle of the night. They can't make money by doing that, and particularly they can't make money doing that with a company like Chrysler.

INSKEEP: We've been listening to Colin Blaydon. He teaches at the Tuck School of Business at Dartmouth. Thanks very much.

Prof. BLAYDON: Thank you. Transcript provided by NPR, Copyright NPR.

Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.