The auto news biz is abuzz with rumors of Chrysler’s endgame. Even a quick scan reveals that there are more potential scenarios and pitfalls than Operation Eagle Claw, America’s ill-fated attempt to rescue its hostages from Iran. Cerberus trades Chrysler to GM for GM’s remaining share of GMAC. Chrysler sells Jeep to Renault and the rest to GM. Chrysler parts out the company and THEN declares Chapter 11. But no matter how this plays out, foot soldiers will be sacrificed, the American auto industry will remain bound and gagged and the generals will get off Scott free.
Let’s start with what we know. Cerberus never intended to run Chrysler as an automaker. As Ken Elias pointed-out in his GM Death Watch, right from the git-go, the automaker’s most recent owners have starved Chrysler of all the investment necessary to run Chrysler as a going concern. In that sense, they lied to union workers, white collar employees, suppliers, dealers and customers. And the media bought their lies like a teenager purchasing a pack of condom with a knowing cock tease by his side. Hey baby, are you into EVs?
Now that Cerberus has been unmasked by the rest of the media (TTAC called the finance company’s play a strip and flip even before the sale was complete), we also know that Cerberus wants the Hell out of Chrysler, and soon. When Chrysler CEO Bob Nardelli famously pronounced that his employer was “operationally bankrupt,” he wasn’t kidding. The automaker’s truck business is dead, their car business is deader and the finance part of the program is the deaderer (apologies to Andrew). There is no there, there; and the red ink won’t stop spurting until Chrysler bleeds out.
So, assuming Cerberus hates carmaking and wants out now, what to do, what to do? There are three likely scenarios.
First, sell it to a sucker. I break with Mr. Elias’ view that GM will “absorb” Chrysler to ensure a prime position at the federal bailout trough. As PCH101 points out, GM is already too big to fail. In terms of public perception, the idea that GM is “healthy enough” to buy Chrysler (a dumbing-down of the concept, but there you go) would undermine its claims against the public purse. So who else? Renault? No. A Chinese automaker? Nope. In this market, no one. So fuhgeddaboutit.
Second option: Cerberus toughs it out. It keeps Chrysler until the industry shakes out and picks-up, and then sells it to whoever is left for whatever it can get. At this point, Chrysler would need federal “assistance” to stay in the game. The fact that ChryCo offered the media some cod-electric vehicles– pitching for part of the existing $25b federal loan program– shows that the company is ready, able and willing to steal borrow money from Uncle Sam.
I also disagree with Ken’s contention that the feds couldn’t loan bailout billions to Chrysler because it’s a private equity firm. If AIG execs can receive federal “intervention,” spend $1m on company pedicures and not be strung-up from a light pole, why should the fact that a guy who skis in Gstaad owns Chrysler make any difference to bailout boosters? As twisted as it sounds, a Chrysler bailout also sounds fair. If we give a loan to GM, why NOT Chrysler? Chrysler’s got history. “We made the feds a PROFIT the last time ‘round. And, lest we forget, Cerberus has plenty of good friends down in D.C.
If, however, Cerberus needs or wants a right now solution to their problems, bankruptcy is it. Or Chapter 7. Either way, option three is the fastest, cleanest and, possibly, cheapest option.
I know: I predicted a ChryCo C11 for late July. But unlike GM’s point-of-view, bankruptcy protection is ALWAYS on the table for Cerberus. Cerberus bought a controlling stake in Houston-based mortgage lender in 1998. Aegis ceased operations in August 2007. When Mervyn’s department-store chain (part-owned by Cerberus) hit the skids this summer, Cerberus pulled the plug and filed for C11. This very day, Mervyn’s filed for Chapter 7.
So which option is Cerberus pursuing? I reckon it’s all three at the same time. The big news here: Reuters reports that Cerberus is negotiating with Daimler to buy back the German automaker’s share of the American company. ALL of these exit strategies depend on Cerberus owning 100 percent of Chrysler.
No matter how you look at it, Chrysler is attempting to kill itself. Of course, there are some big winners in all this: JPMorgan and Citigroup (representing Cerberus) and Morgan Stanley and Evercore Partners (representing GM). The fees involved in keeping Cerberus’ options open must be astro-friggin’-nomical (and the meter’s already running). Another winner: the transplants. Chrysler’s slow bleed lets them gradually increase their share of the American without anyone noticing. How sad is that?
Does this warrant (as) a Chrysler Suicide Watch article?
Yup. I’ll leave it as a blog post until it’s extended and edited, and then switch.
*Sigh*
I would hope that Renaul will prove smart enough to avoid such a deal. Gm, on the other hand….
Done deal? Seriously? All of the facepalms in the world can’t convey my emotions, but I’ll try…
http://images.encyclopediadramatica.com/images/e/e1/Facepalmuber.jpg
I still can’t accept that there’s merit to this story. Honestly, a GM and Chrysler merger? Really? Has there ever been a worse idea?
ferrariman355, that has to be one of the most awesome JPEGs I’ve seen in a long while.
Well done.
I never knew Ironhide from Transformers was so in tune with his emotions. Finding Picard doing a facepalm, however, is like shooting fish in a barrel.
ferrariman355, that has to be one of the most awesome JPEGs I’ve seen in a long while.
I don’t take credit for that one. I just know that many of the B&B are thinking about facepalming over the news…
The GM execs must look like Chevy Chase in National Lampoons Vacation, the scene at the pool with Christie Brinkley.
“This is crazy, This is crazy, This is Crazy….”
How about a FIAT/GM/TATA/Chrysler/Nissan/Renault/Shanghai merger?
They could call it Shanghai GM (tongue in cheek) – oh, wait…. never mind.
May as well put everything into the pot and stir, see what happens…. (deep sarcasm)
(face/palm)
I’m choosing to remain in denial. Just can’t be true.
ferrarimanf355
Thanks for the new desktop….I was going to use the Inferno reference, but it is probably not appropriate for work
I hope it’s just the standard rumormongering/panic passing itself off as journalism. Chrysler makes cars I actually like…and GM (minus the G8/CTS/Corvette) doesn’t.
Oh well…sounds like there’s not too large a window. We’ll see what’s actually going on soon enough.
So my question is, is Chrysler still tied to the unions?
I think this could really work for GM, assuming they could immediately shut down all the Chrysler plants producing Avengers and Calibers and all the other worthless cars they make. Just kill the Dodge and Chrysler brands. Then they can pull their own union workforce out of the job banks, bring their idle factories back into production, and fill Chrysler’s market void with GM products.
Or are they just going to have to inherit Chrysler’s job banks as well?
“And there hasn’t been a really juicy merger in God knows how long.”
Dailmer-Chrysler. Look how well THAT turned out.
This is madness!!!
Madness??? This is… Spartaaaaaaa!!!!
Oops, that’s from another movie.
The scale of the stupidity necessary to facilitate this merger is simply unfathomable to me. No one could possibly be that dumb.
Reminds me of Jack Hawkins last words in The Bridge Over the River Kwai — “Madness! Madness!”
Paraphrase GM’s thinking: “So, what we are doing isn’t working, so lets get more of it and do it faster! Yay!”
Honestly, the aim for big bailout bucks is the only way this makes sense to me.
I can hardly wait to watch people drive from GMC to Chev to Crysler to look at 3 rebadges of the same vehicle to see who will give the “best price”
Without any hyperbole, this is quite possibly the worst idea in the history of the universe.
Someone over at GMI who seems to have an inside line on the discussions is saying that the ‘rationale’ (I hesitate to imply rationality) is to create a firm that’s Too Big To Fail.
I stand by my assertion.
There seems to be enough buzz on this to take it seriously. Given the number of ways a deal can be sliced, it may be virtually impossible at this point to judge the stupidity of GM and Nissan.
The real driver would seem to be Cerberus. If it wants out now then something will happen. If GM were careful it could pick up a few useful items as one might at an estate sale. And given the p.r. consciousness of GM management, I imagine that whatever they do will be designed to change the current media narrative.
Honest question: Why wouldn’t an estate sale be a good thing? Cerberus would presumably get a greater return by parting out Chrysler than by selling it intact. GM and Nissan could pick off what they want without taking on too many additional liabilities. Meanwhile, the Detroit automakers would presumably benefit by keeping a Chinese automaker from gaining access to Chrysler’s complete infrastructure.
# guyincognito :
October 17th, 2008 at 10:32 am
The scale of the stupidity necessary to facilitate this merger is simply unfathomable to me. No one could possibly be that dumb.
Haven’t been paying much attention to GM have you?
Most assuredly GM, the definition of dumb, will be a major source of information of what not to do in business class textbooks for many years to come.
I think you meant to say “Cerberus trades Chrysler to GM…” in P1, L5.
I didn’t see PCH101’s comment on GM being too big to fail, but I would tend to agree – the ramifications of a failed GM would be too terrible for any legislators or the new Pres. to swallow. If that’s the case, should the GM death watch be a GM complete bailout watch?
Where are all the cop cars and government vehicles going to come from if they die?
the duke :
Text amended. Thanks.
If that’s the case, should the GM death watch be a GM complete bailout watch?
Down the rabbit hole time. Right, we have the GM and Ford Deathwatch, a Chrysler Suicide Watch, and a Bailout Watch (not to mention the other timepieces). The BOW covers the general bailout. The other three are self-explanatory. I hope.
Ok, a key item here is that Cerberus is negotiating to get the 19% of Chrysler it doesn’t own from Daimler. That means they are willing to pay cash for the remaining stake in a failing company they don’t want. Doesn’t that strike anyone else as nutso?
Clearly the only reason they want to own 100% of Chrysler is so they can sell it to Tata or whoever. And the value of this sale must be greater than Chrysler’s real estate value minus their debt.
So who wants to bet that the deal between Daimler and Cerberus only gets signed IF they are able to sell Chrysler. AND I’d wager that Tata is playing chicken with Cerberus on the price – every month Tata waits means the price goes down. But if they wait too long, Cerberus files CH.11 and no sale.
Fixing the business? No way.
Waiting for gov’t bailout? No way. These guys want out way before that money shows up.
I vote for the “Space Ghost” palmer.
Thank f-man.
Bunter
This is the worst merger I’ve heard of since John Lennon and Yoko Ono.
Can the employees and workers BUY the corporation from Cerberus, try to get the government loan and save it?
When Dumbler was selling it, I remember the workers of the company offered or made this proposal.
This way, and also taking it public, the people who really will hurt if Chrysler goes C-7 will have at least a “opportunity” to try and fix it.
And get rid of many stupid suits in the process.
Here is a scary thought ……
Today is Friday and GM likes to spring news and press releases after the markets close…..
Just a thought !
With the Wall Street Journal cheer leading the possible merger in today’s edition, there appears to be some backing from lenders who are owed money by both Cerbus-Chryser / GM for the tie up.
I hope this a savvy move by GM’s management to distract the Cerberus long enough and then pull out of the deal at the last minute.
Unfortunately, I haven’t seen too many savvy moves from Rick Wagoner and his team.
Let me throw another scenario on the table
The Case for Volkswagen Buying Chrysler:
Volkswagen CEO Winterkorn has publicly declared his company’s intention to sell at least 1 million units per year in the US by 2018 ( http://www.autonews.com/apps/pbcs.dll/article?AID=/20080310/COPY/683833640/1176/ANE ) as part of the plan to catch up to Toyota by the same time. Last year VW moved just a bit over 300,000 cars in the US and this year they are going backwards from there. On a global basis, VW is now number three behind front runners Toyota and GM. VW enjoys the rare and enviable position of having an extraordinarily valuable stock right now; with a market capitalization of over $145 billion. Don’t you think Cerberus would be tickled pink to trade off Chrysler for a few billion dollars worth of VW stock? VW needs North American manufacturing capacity and a cheaper product line to offer in this country. Check. The product lines of the two companies have so little overlap that VW is already re-badging Chrysler minivans and calling them its own. But wait, there’s more! VW’s US problems in part are the result of a long history of cluelessness about the US market. Enter Jim Press, stage left. There probably isn’t another executive on the planet who knows more about selling a foreign brand on US soil than does the former Mr. Toyota USA. Criminologists talk motive, means and opportunity. Volkswagen has all three elements. Probably the only thing holding them back is the way Daimler-Benz botched the prior merger of equals. But surely Dr. Piech, you are much more capable than the buffoons in Stuttgart, jah? Settle this little intra-family feud between Porsche and Volkswagen; then get on with marching towards global domination.
P.S. Volkswagen is also the largest automaker in the world’s largest market, China. Oddly enough, Chrysler was WAY ahead of the curve there with the establishment of Beijing Jeep by AMC way back in 1983.
I used to work with these guys at Chrysler.
I feel for them as it appears that ChryCo is near the end of a long and painful death spiral.
And now for the “if only’s”….
In my opinion, the logical buyers for Chrysler are VW, Magna or a foreign company such as Mahindra & Mahindra that wants to quickly grab a US presence at a low price.
VW has a history of growing through acquisition, and the idea of VW buying a distressed company with lousy branding is not unknown to them. The joint venture minivan suggests that they have some knowledge of the current operators and would get their calls returned.
But whether all or any of these are in the running, I don’t know.
This is the craziest thing since Spacely Sprokets tried to acquire Cogswell Cogs….if only Jetson did screw that deal up…
Oh wait…this is not a cartoon…
Next stop for Chrysler: NISSAN
Wonder if GM management is second guessing their ‘partnership’ with Cerberus now?
GMAC/Cerberus is literally choking the General into submission with the latest move to head for the sidelines.
If Chrysler really does have the cash to outlast GM, it’s not impossible to envision Cerberus making a killing on this deal by winding up with both GMAC and a major holding in GM.
Story from fairly good sources today is that chryler gm deal is going down, bankers are controlling everything. cash in deal keeps gm alive for another year, and then federal money likely. absolutlely no real thought given to integrating companies. Cash is king, integration isnt.
netrun :
Ok, a key item here is that Cerberus is negotiating to get the 19% of Chrysler it doesn’t own from Daimler. That means they are willing to pay cash for the remaining stake in a failing company they don’t want. Doesn’t that strike anyone else as nutso?
I’d assume the only negotiation there would be how much Daimler pays Cerberus to take that 19% tumor off it’s hands.
On the bright side, maybe we’ll get a Hemi-powered Volt out of this…
Why buy now? It’ll be cheaper next month.
Phil Lebeau at CNBC is saying GM gets the $10B that Chrysler has on the books, Cerberus pays GM another $3B to get rid of it and gets an equity stake in GM. It takes a few billion to dispose of the Chrysler operations, they might even sell Jeep for a profit, and have cash left over to help them get to the magic year (which we all know won’t really be that magic).
It’s a theory… but I don’t see it.
Maybe GM/Chrysler can borrow the B-Ark idea from “The Hitchhiker’s Guide to the Galaxy” and create a spinoff company full of all the brands they want to kill and people they want to fire. The spinoff company goes bankrupt and GM gets out from under the too many brands and too many present and former employees problem.
http://en.wikipedia.org/wiki/Places_in_The_Hitchhiker%27s_Guide_to_the_Galaxy#Golgafrincham
“Golgafrincham is a red semi-desert planet that is home of the Great Circling Poets of Arium and a species of particularly inspiring lichen. Its people decided it was time to rid themselves of an entire useless third of their population, and so the descendants of the Circling Poets concocted a story that their planet would shortly be destroyed in a great catastrophe. (It was apparently under threat from a “mutant star goat”). The useless third of the population (consisting of hairdressers, tired TV producers*, insurance salesmen, personnel officers, security guards, management consultants, telephone sanitizers and the like) were packed into the B-Ark, one of three giant Ark spaceships, and told that everyone else would follow shortly in the other two. The other two thirds of the population, of course, did not follow and “led full, rich and happy lives until they were all suddenly wiped out by a virulent disease contracted from a dirty telephone”.
The B-Ark was programmed to crash-land on a suitably remote planet on one of the outer spiral arms of the galaxy, which happened to be Earth, and the Golgafrinchan rejects gradually mingled with and usurped the native cavemen**, becoming the ancestors of humanity and thereby altering the course of the great experiment to find the question for the Answer to Life, the Universe, and Everything, or so Ford Prefect presumes. A lot of them didn’t make it through the winter three years prior to Arthur Dent’s reunion with Ford Prefect, and the few who remained in the spring said they needed a holiday and set out on a raft. History says they must have survived.”
Yes, of course, George. I can see where this goes. GM shoves the useless people and divisions off onto Chrysler corporate shell (now known as “American Motor Cars LLC”) after the “absorbtion” then cuts it loose a la Delphi, and “American Motors LLC” survives and GMChrysler takes a dirt nap….
I would laugh my @ss off….
AMC would be the low priced, economy cars (think Subaru crossed with pre-suv Kia), Saturn would be the slightly upscale euro-line, Hummer would be the sport utility vehicles which come back strong as AMC re-discovers 1970s hydraulic hybrid tech and diesel engines and Buick would be the luxury barges from low-cost China.