Sometimes, it's hard to determine if major investors are being overly optimistic, outright daffy, or are simply seeing something that the rest of us just don't see.

In my view, the current course of events at Chrysler Corp. is one of those difficult to determine situations. On its face, it looks like it could be a case of basic business logic in action. But on closer examination, it just doesn't make sense, at least not to me.

Declaring a payoff horizon of ten years, Cerberus Capital Management has placed a great deal of faith in Chrysler, the American auto manufacturer which is best described these days as an also ran. The kicker is, the Cerberus ten year plan is being initiated at a time when auto industry profitability is near impossible. Consider also the fact that current Chrysler management openly admits that the company isn't in any condition to go it alone.

And there's more trouble in the mix. Cerberus said in a New York Times story that Chrysler is meeting "every financial metric." But Cerberus considers the world's current economic turmoil to be a temporary problem, not the economic world change that it actually is. Meanwhile, Chrysler CEO Bob Nardelli is smiling because Cerberus has given Chrysler lots of money, and he gets to cut heads.

Back in 1992, Steve Feinberg started a small private equity firm, Cerberus Capital Management LP. It was actually a tough time in the markets. But not for Cerberus. After all, it focused on distressed deals.

Now, the firm is putting together a fund to focus on distressed opportunities in foreign markets (this according to Reuters). After all, the credit crunch is a global crisis -- as seen in places like the UK and even Asia.

In fact, the new Cerberus fund will look mostly at financial services companies, which need lots of capital.

All in all, it's a smart move -- and should produce nice returns. Moreover, Cerberus has strong leadership to pull things off. For example, the chairman of the firm is John Snow, who is the former Treasury Secretary and has a golden Rolodex.

It also looks like Cerberus may raise capital from sovereign wealth funds. Keep in mind that TPG recently snagged $2.5 billion from China for its new fund.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

So what do you do if your company produces mostly heavy, inefficient vehicles as gas soars past $4 a gallon? Some might say you should produce more efficient cars. But not Chrysler, which has instead opted to make gas cheaper, guaranteed!

Today, Chrysler CEO Bob Nardelli announced that anyone crazy enough to buy a heavy, high-horsepower, low-mileage Chrysler product before May 31 will be able to buy gas for no more than $2.99 a gallon for three years. Just take your shiny new Aspen or PT Cruiser to the gas station and use your special gas card; Chrysler will pick up the cost over $2.99 a gallon.

Some critics are calling this plan a cheap gimmick. But there is no denying that Chrysler is at a disadvantage relative to General Motors (NYSE: GM) and Ford (NYSE: F) when it comes to offering new cars that get decent mileage. And it is light years behind the auto design leaders, Toyota (NYSE: TM) and Honda (NYSE: HMC). So it needs some kind of gimmick to help its dealers clear out the cobwebs that are quickly forming on their lots.

In recent years, Chrysler has relied heavily on trucks and SUVs for sales, and its hot new cars like the Challenger are gas guzzlers. (Hey, your Hemi sure is fast! Sorry about the 11mpg!) Its lineup is in desperate need of an overhaul and products that offer decent mileage. But developing new cars is difficult and very expensive, and it's not clear that Chrysler's owner, Cerberus Capital Management, has the money to do it. The alternative -- advertising and sales gimmicks, long favorites in Detroit -- is cheap by comparison.

This promotion might work, at least for a few weeks. But it points to much larger problem: Chrysler doesn't have the goods to compete right now, and it's not clear when it will, if ever.

United Rentals (NYSE: URI) recently down $3.72 to $17.85:

WSJ said that the court found against URI in the Cerberus case. URI was suing Cerberus Capital Management for walking away from a $6.6 billion buyout of URI. URI January option implied volatility of 130 was above its 26-week average of 33 according to Track Data, indicating larger movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

United Rentals Inc. (NYSE: URI) confirmed that the trial in its lawsuit against Cerberus Capital Management for walking away from a $4 billion buyout of URI has been postponed for a day to allow the parties to continue with settlement talks. URI over all option implied volatility of 86 is above its 26-week average of 30 according to Track Data, indicating larger movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Shareholders at United Rentals (NYSE: URI) have a right to be mad. Hedge fund Cerberus Capital Management offered to buy the company. Shares rose from about $27 to over $34.

Then Cerberus walked. United Rental stock fell to $20.76 and has not recovered much. The entire matter headed to court. The legal battle was to begin today in Delaware Chancery Court. That has been delayed while the two sides talk.

Cerberus said that it was within its right to break off the contract. According to The Wall Street Journal, "the delay could help United's flagging stock price, as well as clear up some of the negative public perception of Cerberus, a Wall Street buyout shop that provided little detail for why it walked away from its agreement."

In other words, it may have been in the financial interests of Cerberus to walk out, but its may be a shaky legal ground.

Private equity firms have broken a number of these buyouts now, and, in some cases, contracts allowed them to do so. The court system is likely to catch up to them at some point soon. If settlement talks with United do not work out, it may be in this case.

Just one announcement that an LBO shop has had to pay hundreds of millions in damages would send a real shudder through the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

Yesterday, United Rentals Inc. (NYSE: URI) published an ominous press release saying that its private equity sponsor, Cerberus Capital Management, "is not prepared to proceed with" the $7 billion transaction. Of course, with the uncertainty in lending markets, this should not necessarily be a surprise. Nonetheless, the shares of United Rentals plunged 30%.

United Rentals is the largest equipment rental company in the US. Annual revenues are about $3.7 billion and EBITDA is about $1.1 billion (which is always something private equity folks like to see).

If you take a look at the merger agreement, the break-up fee is $100 million. That's a pittance for Cerberus. In other words, if the cost of financing has spiked -- making a deal much more expensive -- why not just pay the $100 million? But the question is: may United Rentals have a case for requiring the deal to get done? Well, that's where things get fuzzy. I'm really not sure.

That's a good question for attorneys. And, yes, United Rentals has retained Orans, Elsen & Lupert LLP. So we may see showdown in the Delaware courts. If you want to see a great analysis of the legal argument, you can check out the M & A Law Prof Blog.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

The United Auto Workers went on strike against Chrysler this morning, according to the AP. The strike involves 48,000 workers at Chrysler's American factories.

There has been some speculation that Chrysler's new owner, Cerberus Capital Management, may be not be willing to make a deal with the union, at least not any time soon. Union officials are reportedly preparing for what could be a long strike.

Autoblog informs us that Chrysler has hired a key executive from Toyota Motor Corp. (NYSE: TM). James Press, the top-ranking Toyota executive in North America, will join the Chrysler Group as Vice Chairman and President. The announcement was made by Chrysler earlier this morning, and you can read the press release at Autoblog.

At Toyota, Mr. Press' title was President and Chief Operating Officer of Toyota North America, and during his tenure Toyota made significant gains in the American market. Mr. Press is widely respected in the industry, earning the honor of being the first non-Japanese member of Toyota's board, as well as Automotive Executive of the Year.

This change at Chrysler, owned by Cerberus Capital Management since early August, has to be seen as good news. By all reports, Mr. Press loves cars (as opposed to finance or advertising, the preoccupations of most American car execs) and his experience with the world's best automaker should help Chrysler enormously. Interestingly, Mr. Press was quoted in The New York Times in April, when he was still at Toyota, as saying that Chrysler had "solid products" and a bright future. Maybe he knew then that Detroit would be calling for help.

Cerberus Capital Management may sell some of Chrysler's non-automotive units, according to Bloomberg. The units in question are Mopar, Chrysler's famous service and parts producer, and Chrysler Transport, which manages deliveries to the automaker's plants.

Cerberus assumed 80% ownership of Chrysler from DaimlerChrysler (NYSE: DAI) on August 3. Cerberus is now engaged in contract talks with the United Auto Workers as it looks for ways to cut costs. The union is reportedly opposed to the sales for fear of job losses; the units employ roughly 1,300 unionized workers. Chrysler's four-year contract with the UAW expires on September 14.

Analysts are saying that the sale of the units would allow Cerberus to focus on Chrysler's core business of making cars and trucks, and help raise much-needed cash. But Mopar is hardly a peripheral unit. Chrysler has been using the term to refer to its parts since the 1920s, and Mopar has long been virtually synonymous with the automaker. This is especially true when it comes to high performance cars, including the famous muscle cars of the 1960s and 1970s -- the Barracuda, the Super Bee, the Road Runner -- that Chrysler is trying to revive. So you have to wonder if this is a good move in the long run. Let's hope that Chrysler doesn't lose what makes it unique and desirable to car lovers as it works to return to profitability.

In Monday morning news that had me scratching my groggy head, BusinessWeek reports that fired Home Depot Inc. (NYSE: HD) CEO -- and General Electric Co. (NYSE: GE) alum -- Bob Nardelli is in charge of fixing Chrysler. If someone can explain to me why this makes sense, I would like to hear it.

That's because during his tenure as CEO, Nardelli systematically destroyed Home Depot's greatest strengths -- its expert sales staff and ability to supply products that customers needed in the stores. Moreover, he has no experience in the automobile industry, which depends heavily for its success on developing cars that consumers want to buy at a price they can afford.

Nardelli is not the first manager from outside the auto industry to be parachuted in to save the day. Consider Alan Mullaly, who was passed over for CEO of Boeing Company (NYSE: BA) for another GE alum, James McNerney. Mullaly took over at Ford Motor Co. (NYSE: F) in September 2006.

Cerberus Capital has made a huge mistake in hiring disgraced former Home Depot Inc. (NYSE: HD) CEO Robert Nardelli to run Chrysler LLC. which it officially acquired Friday for $7.3 billion.

For one thing, he has no experience in the auto industry. Moreover, he was a horrible CEO at Home Depot, whose arrogance was matched by a lack of operational skills. The Atlanta-based retailer is in the process of selling off its HD Supply Division, which Nardelli built, to a private equity group lead by Bain Capital for $10.3 billion. Home Depot also lost market share to Lowes Cos. (NYSE: LOW) and saw its stock price fall about 8% under Nardelli's leadership.

The reasons and justifications for the appointment make no sense. The New York Times reported that Nardelli was hired for his "turnaround expertise" and won't be paid if the automaker "does not improve." I'm not quite sure what that means.

Nardelli was highly regarded when he worked for General Electric Co. (NYSE: GE) and was one of the candidates to succeed Jack Welch when he retired. That reputation got him the job at Home Depot, where he earned an outrageous compensation package and the ire of shareholders. Maybe Cerberus thinks that Nardelli can bring the GE touch to Chrysler.

Unlike Home Depot, the workforce at Chrysler is unionized. Nardelli better keep his considerable ego in check during the current round of contract negotiations, otherwise he's going to have huge problems. Though considerably weakened, the UAW will probably be as ornery to deal with as any Wall Street investor.

Nardelli has got an incentive to keep his ego in check. If he can turn Chrysler around, he may get an ownership stake in the company that will make him far wealthier than he is today. Of course, he'll still be plenty rich if he fails too.

That's one of the perks of being a failed CEO.

Two big private equity deals are having trouble getting banks to lend them money. This trouble reveals the essential function of private equity firms -- the ability to convince banks that the fees they'll get for financing deals exceed the risk of loss if the borrowers can't pay back the money. In the past, the banks would sell portions of the loan to other banks and investors to limit their risk. But the appetite for those investments is disappearing.

Cerberus Capital Management and Kohlberg Kravis Roberts & Co. are both suffering this morning. The New York Times [registration] reports that Cerberus is not able to raise the $5 billion in debt it needs to finance its takeover of Chrysler. The snag is a result of investor unwillingness to accept the terms for $12 billion in loans and "does not jeopardize the deal."

Perhaps the deal is not in trouble, but if it does go through, the terms might make it less profitable for Cerberus. For now, the five banks, led by JP Morgan Chase & Co. (NYSE: JPM), plan to take on about $10 billion of the debt and try to sell it later -- Chrysler and Cerberus will carry the other $2 billion.

Our friends at Autoblog are reporting that the multi-billion dollar buyout of Chrysler by Cerberus Capital Management is expected to have a positive impact sales for the car and truck manufacturer.

According to a report by CNW Market Research, some consumers see the purchase of Chrysler by Cerberus from DaimlerChrysler (NYSE: DCX) as a good sign. Apparently people prefer to buy cars from companies that are financially healthy and seem to have a positive future ahead of them. The impact on sales form this change in consumer perception could be substantial -- CNW Market Research says the increase in sales could be as much as 4.4%.

Autoblog points out that this change in perception may be short lived. Cerberus may take drastic steps to restore profitability, and this may generate conflict (and negative headlines) with labor groups. Chrysler has a long way to go to become profitable again. For one thing, it needs to stop relying on SUVs and big trucks and start building more fuel-efficient cars, since it looks the era of $3 per gallon gas is here to stay.

Most of yesterday's reports on the sale of Chrysler to Cerberus Capital Management focused on the $7 billion DaimlerChrysler (NYSE: DCX) will receive in the sale. This represents a great loss for Daimler, which bought Chrysler for $36 billion in 1998. But when you look carefully at the deal, the story is much worse than that. Not only is Daimler not getting $7 billion, it is actually paying Cerberus to take Chrysler off its hands.

Both The Wall Street Journal and The New York Times (here and here) are reporting this story today. According to the press release on the deal, Cerberus is investing $5 billion in the new Chrysler company. This money does not go to Daimler. An additional $1 billion will be invested in the new company's financial arm, and none of that goes to Daimler either. So that accounts for $6 billion of the $7 billion deal.

That should leave $1 billion for Daimler -- but that won't end up in Daimler's pocket either. Daimler will loan the new company $400 million. And restructuring costs will come to over $1 billion. Daimler will also pay nearly $900 million in "prepayment compensation," whatever that is. In the end, Daimler will send something like $677 million in cash to Cerberus, along with another $900 million in other payments, for a total cash outflow of $1.6 billion.

In a way, though, this makes sense. Daimler is spending a small fortune to escape from a much larger $18 billion in obligations for health care and pensions that are attached to Chrysler. Once again, the bizarre health care and pensions systems in the United States -- which are hopelessly complex, expensive, and inconsistent -- harm the competitiveness of American manufacturers and the well-being of employees. It's not clear whether Chrysler will be able to make it on its own. But it is clear, once again, that the U.S. needs a new social safety net of national health insurance and decent pensions, one that will make it possible for Americans to build products that can compete internationally. Daimler doesn't have to worry about making health care payments, and neither should Chrysler -- or any other American company.