Chrysler, Lerner said, "is really an underperforming company, with a board that is paralyzed by factionalism and the sense that they don't know how to handle the situation."
By contrast, Cerberus' expertise is in spotting the potential in distressed securities and companies, said Kelly Deponte, a partner at Probitas Partners, a San Francisco-based firm that helps private equity firms raise money.
For The Record
Los Angeles Times Wednesday May 16, 2007 Home Edition Main News Part A Page 2 National Desk 0 inches; 29 words Type of Material: Correction
Private equity: An article in Business on Tuesday about private equity investors misspelled the last name of a Massachusetts Institute of Technology professor. She is Antoinette Schoar, not Shoar.
Cerberus, founded in 1992, is no stranger to the auto industry. The portfolio of companies the investment firm has accumulated in recent years includes auto parts firm GDX Automotive as well as a majority stake in General Motors Corp.'s GMAC financing unit. Cerberus also owns the parent company of Alamo Rent A Car and National Car Rental.
In March the firm agreed to buy beleaguered auto parts maker Tower Automotive Inc.
Cerberus Chairman John W. Snow, a former Treasury secretary in the Bush administration, said Monday that the company pursued Chrysler because it "believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry."
In the case of companies that need extreme makeovers, one argument in favor of private equity ownership over the public-company model is that the financial reward for private equity managers is directly tied to their success in revamping the business.
"Because of the financial incentives, it makes private equity buyers more flexible in how they deal with the issues and what kind of solutions they might find," said Antoinette Shoar, an associate professor of economics and finance at Massachusetts Institute of Technology.
But a key question is what cost private equity managers will exact from workers in the battle to boost a company's bottom line.
Concerned about private equity investors' growing clout, some unions are trying to pressure the firms to preserve jobs and let workers partake of the financial benefits of successful restructurings.
The Service Employees International Union, which represents certain government and healthcare workers, is scheduled to testify Wednesday before Congress about the effect of the private equity boom on companies and workers.
"You have a relative handful of companies that have extraordinary influence on the lives of literally millions of workers," said Stephen Lerner, an organizer at SEIU. "There's a choice for private equity, which is to say, 'Yes, we do have a broader responsibility to makes things better,' or they can say, 'All we care about is making money and tough luck' " for those who get hurt.
