Can Chrysler survive?

The frailest of Detroit's automakers has been in private hands for a year. CEO Bob Nardelli badly needs a hit if the company is to endure.

When the U.S. economy catches a cold, Detroit gets pneumonia, or so the old saying used to go. These days it's double pneumonia, and the business is on life support.

Besides being caught in a cyclical downturn brought on by the subprime lending crisis, the U.S. auto industry is going through a secular transformation caused by the spike in oil prices. Goodbye, high-profit pickups and SUVs; hello, breakeven (or worse) small cars.

All of the old Big Three are suffering, but none like Chrysler. Chrysler has invested less than either Ford or GM in small cars and alternative fuels, and has no significant international operations to provide some relief.

For the past year Chrysler has been run as a private company under the ownership of Cerberus Capital Management, the private equity firm. Cerberus doesn't want to be in the auto business; it is in the money business, and the sooner it can transform the former into the latter, the happier it (and its investors) will be.

Cerberus brings quick reflexes (no directors to consult, no public disclosures to coordinate); a broad range of industrial management experience from its other portfolio companies; and an insistent focus on a single goal: earning a return for its investors. What it doesn't have are deep pockets; long relationships with Chrysler dealers, suppliers, or customers; and patience.

Still, Cerberus says it has a longer time horizon than traditional private equity firms -- most of its funds have expiration dates of a decade or more, and some have no liquidation dates at all. But last year Chrysler lost $1.6 billion before taxes, and it will lose money again this year-possibly a lot more. Its auto sales are down a stunning 22% so far this year.

At the intersection of Cerberus and the auto business stands CEO Bob Nardelli.

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