For Chrysler This Year, a Lump of Coal

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2007dodgenitro2The race to the bottom is a ghoulish spectator sport, but the surprise for 2007 is Chrysler’s victory in getting there first among the Big Three. The company expects a $1.6 billion loss for the year, no shocker there. What’s caught many auto analysts off guard is the magic that private equity was supposed to confer on the company looks like its biggest liability going forward.

Cerberus has made all the right moves to give it advantage over its publicly held competitors. Days after concluding a sweeheart labor deal, it announced the layoffs of as many as 25,000 workers. It staffed up its executive ranks with outsiders to shake up an ossified culture. It sacked its communications chief just days ago and buried the entire department in human resources. It lobbed off four dogs in its lineup . It announced some forward looking models to its product line, including a Jeep with a lithium-ion/diesel hybrid powertrain, an electric Dodge wagon and a fuel-cell vehicle. And just yesterday it announced a deal with Nissan to jointly supply automobiles in a cost-cutting move.

So what went wrong? Read after the jump.

Unfortunately, Chrysler has crashed into the subprime housing catastrophe. American consumers, feeling poorer and unable to tap easy money for car loans, are scaling back car purchases. This has hurt all automakers, however. But Cerberus has gotten hit both ways. It’s going to need piles of cash if it hopes to turn Chrysler around. That money is evaporating because of the credit crunch resulting from the housing crisis. And Cerberus is up to its woo-woo in other sour deals.

Private-equity dogmatists had cheered Cerberus’s buyout of Chrysler because of the ruthless turnaround tactics that are difficult to pull off in publicly held companies. But the truth is that Cerberus managers are just flip artists. The strategy has backfired. And Cerberus will either have to dig in for the long haul in managing a car company–or pay someone, as Daimler did, to tow Chrysler away.