Snow, the avuncular former U.S. Treasury secretary, signed on with Cerberus last fall and has become its ambassador for putting a kinder face on the firm (which is, after all, named for the three-headed dog that guards the gates of Hell). And Snow is no stranger to Detroit. He grew up just down the road in Toledo, where as a kid he could hear the trains delivering car parts to the Jeep factory that is now owned by Chrysler. Eventually, Snow ran the CSX railroad, hauling parts in and Jeeps out of that same factory. In an interview with NEWSWEEK’s Keith Naughton, Snow discussed how Cerberus will manage Chrysler, the fresh perspective it brings to downtrodden Detroit and his first car—a Dodge DeSoto.
NEWSWEEK: There was a great deal of concern before you arrived in Detroit that a private-equity firm would come in and, to use the words of UAW President Ron Gettelfinger, “strip and flip” Chrysler. Is that a mischaracterization of how Cerberus operates? John Snow: Oh, absolutely. But I think the knowledgeable observers of the industry understand that our model is, our approach is patience. It’s a longer-time view. It’s avoiding the rush to produce quarterly earnings. Often what we find in public markets today, they don’t give management the time to implement their longer-term strategies. And Cerberus does. Our calling card, our signature, is patient capital.
Chrysler lost $3.5 billion in the last 15 months. How long will it take to fix the company? Well, we’re not putting any clock on it. We’re not putting any sort of time frame on it. We never buy a company with a disposition or sale in mind. We buy a company to hold it and fix it and improve it and stick with it. Cerberus needs to be thought of a little differently than other people who are in this space. We have much in common with a GE, in that we’re building good businesses for the long term. We have, unlike a lot of PE firms, strong emphasis on the things that make operating companies successful. So we very much have an operating company philosophy to our investments. That’s probably something that defines us and differentiates us.
When you do get Chrysler fixed, would you then sell it or do an initial public offering of stock in the company? Well, that’s just way too early to think about that. I mean, we don’t think about that at this stage of our engagement.
What do you think about? What we’re thinking about now is closing the transaction, working with management to understand the options and strategies available to us. Getting a really good game plan in place. Mr. [Tom] LaSorda, [Chrysler’s CEO], has made great strides in that direction. Learning more about the people. Learning more about how the people we have access to might complement the people at Chrysler. It just isn’t in our thought patterns, it isn’t in our mindset to be thinking in terms of the question you put to me.
As a private company, Chrysler will no longer have to disclose how many cars it sells or how much money it makes. How will the outside world measure Chrysler’s progress? The outside world that we’re most interested in is our investors. They will get regular reports and updates. We’re fiduciaries of our investors. They will, I hope, be pleased with the results we get.
How do you assess Chrysler’s existing turnaround plans, which call for cutting 13,000 jobs and closing factories? We see Chrysler ready for a takeoff now, ready to move to the next phase. And we think the private-equity model will give them the chance to do that. One of the things the private-equity model does is take away a lot of distractions and allow management to focus on what management does best: running the business, improving the product, reducing costs, building commitment to the shared objectives to the enterprise.
Is going private a model for all of Detroit? That’s conceivable, but not necessarily the case. It depends on particular circumstances. I know people are speculating this is the way the rest of Detroit could go. I don’t know that that is foreordained by any means. Private equity certainly isn’t going to displace all of public equity by any means.
American automakers have been given up for dead by many investors. Why is Cerberus investing in Detroit? It’s hard to conceive of the United States without its auto industry and without its manufacturing sector. So we’re believers in American manufacturing. We’re believers in the American automobile industry. We’re also realists. We know that the industry and manufacturing in general face a lot of difficulties. We think, despite those difficulties, the industry will sustain itself and will go on to achieve, as it must, better numbers and better results.
Do you think the U.S. auto industry needs to fundamentally restructure and that Chrysler needs to collaborate more with other automakers and not do everything by itself? I don’t think you should be averse to that. I think we should be open to finding the answers. One of the virtues of a private-equity group is that we try to be imaginative. Turning things around requires ingenuity. It requires trying different things. It requires asking questions that, in many cases, haven’t been asked before. So are we open to new things? Absolutely. That’s what Cerberus does. It breaks the mold and finds new ways to do things that are better than they’ve been done in the past. If we couldn’t do that, there would be no role for us.
Does a car company have to make everything it sells? Or is its value in the fact that it develops, markets and sells the cars. And they can have others build them? I don’t hold myself out as an auto industry expert, we’ve got people who are. We’ve got some 55 companies in any number of industries. Auto is only one. Financial Services. Manufacturing. Retail. And we have people in these industries who are good at asking those most pertinent questions. What we do is encourage them to do so. We’re looking for better answers. We’re looking for ways to do things better. Clearly things have to be done better than they have been.
What kind of car do you drive? I drive a variety of cars, but in the extended Snow family, we have Chrysler products. I can see where in the future we’ll own more Chrysler products. Over the years, I’ve had a whole series of the Jeeps, Cherokees. And we have a Dodge van in the family. Good car. So I’m a fan. My first car, when I was 18 and heading off to college, was a ‘47 Dodge DeSoto. And when I was growing up, my Dad’s favorite car was a Chrysler and when he could afford it he’d buy a Chrysler. I have long, long ties with Chrysler.
Do you imagine that Chrysler will ultimately be a stand-alone car company? Well, I think Chrysler has a good future. I’m a realist that the whole industry has difficulties. But we’re going to do our best to see that Chrysler gets turned to profitability. That’s the key thing. We certainly don’t have any plans for anything beyond seeing Chrysler return to profitability and the first ranks of the global auto industry.
