Can Cerberus teach Chrysler new tricks?

Consumer Reports News: May 17, 2007 03:59 PM

The forced separation of Chrysler from Daimler A.G., Mercedes’ parent, is bound to shake up Detroit as all eyes focus on Cerberus Capital Management, the private-equity company that that just bought Chrysler for the fire-sale price of about $7.5 billion. Although the United Auto Workers have signed off on the deal, it’s hard to imagine that they will be happy with the new owners, who are known for ruthless cost-cutting in pursuit of profits. Recall that in Greek mythology Cerberus is the snarling, three-headed dog that guards the gates of hell. Plainly, Cerberus Capital Management didn’t pick up Chrysler out of philanthropy. One way or another they will turn it into a cash machine.

The woes of the domestic auto industry are largely self-inflicted. Chrysler, Ford, and GM are all hobbled by “legacy costs”--pension and medical coverage for untold thousands of former employees. Foreign competitors, based in countries with nationalized health care and other government benefits, don’t have the same financial ball and chain. But the real problem has been the products. Too often, domestics come late to the party with technical innovations and too rarely produce cars with world-class quality and reliability.

The fact is, Honda and Toyota have proved successful because the cars are good, not because they’re cheap. The American consumer has been quite logically migrating to Japanese cars for more than 20 years for precisely that reason.

In recent years Chrysler has made a name for itself in just one area, styling. The PT Cruiser and the 300 sedan have been hits because they look different from everything else and because they offer the spaciousness and/or utility that American consumers want. But you can’t cruise on looks alone. Even though Chrysler has broadened its product portfolio in the last few years, its newest offerings, such as the Chrysler Sebring and the Dodge Avenger, Caliber, Charger, and Nitro, and the Jeep Commander, Compass, and Patriot are all mediocre performers lacking in refinement based on Consumer Reports testing.

About ten years ago I asked Bob Eaton, then Chrysler’s chairman, why the company had so many product-quality problems. He replied, “Well, unfortunately, in our last reorganization we fired everybody who knew how to make a car.” If Cerberus repeats that mistake, Chrysler could finally come to the end of its long, sad road. Let’s hope this new owner can teach the old dog a few tricks.

--Gordon Hard

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