In the year since Cerberus Capital Management LP bought Chrysler LLC, auto industry watchers have been waiting to see what fresh ideas private equity ownership might inject into the struggling company. Watchers got their wish on Thursday, but the talk of outsourced manufacturing and stronger partnerships is resulting in considerable head-scratching instead of awe.
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The Wall Street Journal reported Thursday that Chrysler and Nissan Motor Co. are in talks about forming a partnership to build and sell midsized cars for the U.S. market. The deal would reportedly put the design and manufacturing in Nissan's hands, with Chrysler selling cars in much the same way Dell Inc. sells computers. Chrysler would continue to design and manufacturer SUVs, trucks and minivans.
The lure for Chrysler and Cerberus is clear: Such an arrangement would eliminate billions in R&D costs Chrysler will otherwise have to incur to get back into the small-car market. The deal would also help solidify ongoing discussions toward Nissan utilizing some of Chrysler's excess manufacturing capability, an agreement that would help ease a cash drain on the privately held firm.
But many in Detroit worry that such an arrangement might be penny wise, pound foolish. Chrysler in effect would be surrendering the car market to another company at a time when Ford Motor Co. and General Motors Corp. are betting their futures on their nontruck and SUV offerings. If Chrysler is reduced to simply selling rebranded Nissans, what reason would potential buyers have to go to a Chrysler dealership?
If nothing else, a strong partnership with Nissan and its Renault SA parent could provider Cerberus with a light at the end of the tunnel for what has been a challenged investment to date. A linkup would surely fuel rumors that Renault/Nissan, whose CEO Carlos Ghosn has been searching for a U.S. partner for years and previously courted General Motors, will eventually acquire Chrysler from the private equity firm. - Lou Whiteman
See story from The Wall Street Journal
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