Chrysler and Cerberus Capital Management won't be formally joined until at least next week, but it's already clear that their union won't begin with a relaxing honeymoon.
Can it be only two months since Cerberus Chairman John Snow and Chrysler Chief Executive Officer Tom LaSorda gave us their best Louis Armstrong impressions, warbling about what a wonderful world it will be for Chrysler under the nurturing wing of private ownership?
But look what's happening now:
• Wall Street balked Wednesday at buying a $12-billion debt offering Chrysler was trying to peddle to raise cash, even after delaying the offering a week as Chrysler's banks tried to find takers for the debt.
• Chrysler has banned more than 450 of its dealers from attending factory auctions of used cars because those dealers were falling way short of new-car sales targets set by the company, according to Automotive News.
• And Chrysler has acknowledged sending letters to dozens of poor-performing dealers, threatening to force them out of business. Leo Jerome, a Chrysler Jeep dealer in Lansing, told the Free Press on Wednesday that he has been given six months to improve sales or face losing his franchise.
None of these problems are expected to impede or delay the closing of the deal for Cerberus, the New York private-equity firm, to buy 80.1% of Chrysler from DaimlerChrysler AG, Chrysler officials insist.
But they illustrate how rocky the road ahead remains for the Auburn Hills automaker, no matter how strong the commitment or how deep the pockets of its new owner.
Financial markets have been jittery in recent weeks for a number of reasons, including heavy default rates on subprime mortgage loans, which back some junk bonds and risky corporate loans.
Chrysler's debt is viewed as riskier than that issued to finance most private-equity deals because the company is burning cash in a weak but hotly competitive market for new car and truck sales.
Chrysler lost $680 million in 2006 and nearly $2 billion in the first quarter of this year. The more nervous investors are about a company, the higher interest rates they charge for the debt, and underwriters have reportedly increased the rates for Chrysler's loans by more than 0.5% in recent weeks.
Meanwhile, Chrysler is playing hardball with some of its dealers, just months after LaSorda worked hard to defuse an angry uprising in the wake of last year's huge inventory buildup. Dealers were choking on a glut of cars and trucks factories kept churning out despite weak sales.
"I certainly was not feeling loved by the old regime," said Carl Galeana, owner of Van Dyke Dodge in Warren and Chrysler-Jeep stores in South Carolina and Florida, referring to former Chrysler sales chief Joe Eberhardt, who was forced out after the inventory fiasco.
Galeana said he is meeting his sales targets, so he personally is not being threatened with closure or banned from used-car auctions.
But Jerome, who got a threatening letter for missing his sales targets, said he sells about 50 new Chrysler vehicles a month in a town populated by thousands of current and former General Motors Corp. workers. He said he is angry and worried about the future of Chrysler.
"My question," Jerome said, "is what is Cerberus going to do differently than its predecessors? Knock off a few dealers? ... I don't think that's the problem. In my opinion, they've got other issues to address."
A Chrysler spokesperson said that thinning the dealer ranks, particularly in older, slow-growth markets east of the Mississippi River, was part of the company's turnaround strategy spelled out in February, months before the sale to Cerberus. But Jerome and some industry analysts see the hand of the new owner-in-waiting behind the effort to step up pressure on the weak dealers.
Snow, a former Treasury secretary, has been Cerberus' public face in the Chrysler deal, although Stephen Feinberg is the founder and chief executive officer. Snow consistently has sung a song about Cerberus being a patient long-term investor in Chrysler, with faith in its turnaround plan and management team.
But that doesn't mean hooey to guys such as Jerome, out there trying to move the metal in a very difficult market.
"What does he know," Jerome, asked, speaking of Snow, "about selling cars in Lansing, Mich.?"
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