With GM, the bailout is pretty straightforward. Give us money or the economy dies. With Chrysler, it’s a lot more… complicated. In case you hadn’t noticed, ChrCyo owner Cerberus is looking for an exit strategy. Give us the money and we’ll sell/give our 80 percent share of the company to someone else. The United Auto Workers. Suppliers. Someone. Anyone. The New York Times quotes the official statement: “Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to effect the restructuring.” How… magnanimous. Meanwhile, president Bush is throwing a quartet of billions Chrysler’s way– without anything resembling a specific plan for recovery (’cause there ain’t one). And here’s the [non] money shot, from the privat eequity firm’s own mouth : “Unless Chrysler’s labor costs can achieve parity with the foreign transplants and without the restructuring of Chrysler’s debt,” Cerberus announced. “Chrysler cannot be restored to long-term health and the government loan will be unlikely to be repaid.” So, unless the UAW capitulates (which it won’t) and the feds bailout Chrysler Financial Services (which it will), you can kiss the Chrysler bailout bucks goodbye. It’s an extraordinary, and extraordinarily honest, admission. But it seems that honesty’s got nothing to do with it…
“Cerberus officials lobbied the White House last week to prevent the private equity firm from being held responsible for the Chrysler loans if the automaker cannot repay them, according to people with knowledge of the talks who declined to be identified because the discussions were private.
But Chrysler executives, who are responsible for the day-to-day operations of the company, were shut out of the discussions, those people said.”
As Tina Turner almost sang, “What’s cars got to do, got to do with it?”
Bottom line: “In its statement, Cerberus said it agreed to provide $2 billion in proceeds from Chrysler’s finance arm to ‘backstop’ the loans.” So, 50 cents on the dollar, a cauterized wound, and 90 days to find an even bigger sucker. Someone needs to give former U.S. Treasury Secretary and current Cerberus Chairman John Snow a raise.
Maybe Cerberus could sell their 80% to the UAW for dirt cheap? Of course the UAW would still run it into the ground, and then they would lobby their buddies the democrats to pay back all of their years and years of votes to nationalize the company, and that way like everything else the government does… making a profit doesn’t matter. It’s all about the jobs man!
The big question, is will the UAW/CAW cave?
Robert Farago says no.
Sorry Robert the unions will eat it.Oh they won’t
like it,lots of kicking and screaming and rash statements.But in the end? The unions will accept
huge concessions.
Remember the VEBA plan,two tiered wages,how about American axle?Sure they made a lot of noise.
The memberships got to think that the union is fighting tooth and nail eh.The union took a 40%
cut at American Axle alone.
I know and the CAW/UAW leadership is painfully aware,that we are in a fight for our very survival.
To be kind, SOME of the membership/retirees don,t
quite get it …YET.
Gettlefinger and Lewenza will fire up the membership with lots of rhetoric.But pay attention boys and girls.With each press release,
and every speech,and with each new news bite.Watch and listen the unions will give up ground every time.
OH YEAH! We will accept the transplants wage and benifit package,but not without a lot of noise.
Mikey CAW [ret]
From the press release:
Cerberus specializes in providing both financial resources and operational expertise to help transform undervalued companies into industry leaders for long-term success and value creation.
I find it ironic that a hedge fund didn’t hedge against their automaker bet.
(-esp since autos + airlines are crap businesses; save LUV)
-That and the continued Appeal-To-Sympathy/Emotion Fallacies.
If Cerberus doesn’t want to pay the money back, I suggest the new administration march their dogs right up to 299 Park Avenue and freeze every asset and account Cerberus has across the entire world, until the $4B is disgorged.
Read that VF article I posted last time. Plenty of other hedgies are sucking it. So can Cerberus.
There is more than one way to skin a cat.
The solution is for the new Dem Congress and President BO to suspend the right to secret ballot voting on unionization of the transplants. Then strong arm tactics can be used to unionize these plants and the workforces can be made equally overpriced and crappy with lots of rules on who can and can’t work. This way it will not be necessary to cut the wages of UAW/CAW workers.
Thinking in terms of Chrysler liquidation, what what would the Saltillo Dodge Ram plant, 2009 Ram design, and Hemi engine be worth liberated from the rest of the company? Good stuff if it comes without the burden of Detroit management and UAW. How would Nissan or Hyundai separate the good part of the company from the GS platform worst car crap? It would be a shame if the Ram, Wrangler, Charger, and Challenger died along with the Compass/Caliber, Journey, Sebring, Avenger, etc.
I’d use the government money to sweeten a sale to another company, loaning it to the buyer in exchange for their investment.
Why give Cerberus a cent? The company has an incentive to cooperate, because their reputation with private equity investors is on the line. If they burn their investors with this deal, they could find getting new business a real tough slog.
Cerberus can earn back their losses on future business, and they know it. A bad economy is a perfect time for them to pick up new companies on the cheap, turn them around, and flip them when the economy recovers, so they have a lot to lose by hammering their investors here.
The situation here is not comparable to that of GM’s. Uncle Sam should take full advantage of that.
Companies like Cerberus suck up challenged or flailing companies, change them by cutting, slashing and changing the face of the company in 3-4 years. Then, through careful press releases of new products and the ‘new’ shape of the company, the value jumps – they sell and get out. This whole situation doesn’t fit Cerberus’ MO and now they are trying to get some payback for their lame efforts. They will work it so they walk away with billions. Waste of our money.
Prez BO’s juxtaposition… He comes from a very pro-union background and yet he’ll somehow need to convince them to come to grips with reality. (And the overpaid execs as well!) Or… maybe we’ll just continue to support them with subsidies like we do the farming industry? Oh, and almost forgot (not really) the financial industry. Any bets? Will the prounion prez turn his back on them?
Cerberus could just sign their stock certificates over to the UAW and call it a VEBA contribution.
It would be interesting to see what the UAW would do if they actually owned a automaker.
“It would be interesting to see what the UAW would do if they actually owned a automaker..”
Now that WOULD be poetic justice! They’d learn the meaning of “dont s–t where you eat” pretty fast!
Of course, this will all be compromised to death. All go-along-to-get-along. Maybe they split the difference – UAW keeps the gravy train until 2010. Maybe the Feds backstop the VEBA.
Maybe, and this is interesting, the UAW gives in now but they are allowed to organize the transplant shops. Everyone works for now at the new, lower, cost basis. When times get good again, the UAW will be able to twist the screws on the whole lot of them!
Oh this statement is brilliant for what it says, ‘all of your tax dollars are belong to us’, but even more so for what it doesn’t say, ‘we aren’t going to use any of the $4B for Chrysler’. I’m just a little fearful of the encore, most likely a Cerberus exec anally raping my mother while pouring sugar in my gas tank.
Cerberus has no personal liability for Chrysler, so they have a lot of leverage since this bailout is really just about saving (special interest UAW) jobs until the economy recovers.
Letting Chrysler go Chapter 7 would cost Cerberus nothing, so they have no incentive to put up a dime.
However, if Cerberus wants to try to split Chrysler automotive from Chrysler financial that is going to ding their limited liability.
Letting Chrysler go Chapter 7 would cost Cerberus nothing, so they have no incentive to put up a dime.
It could cost them future business. That could give them tremendous incentive to step up with at least some cash, if but to preserve their reputation.
Until recently, Cerberus had a reputation for being one of the sharpest private equity firms in the business. GMAC and Cerberus are conspicuous, costly failures in the making and could push them over the edge. Investors will be plenty upset if their investments go from 60 to 0 just like that.
If I was the government, I’d play chicken with Chrysler. I suspect that if forced to the wall, Cerberus would hustle and find a buyer, so that they can minimize the amount of their infusion.
And if they do file a disorderly Chapter 7, they are too small to have much impact, anyway. It would be cheaper and more lucrative to support the major suppliers that are needed by the remaining players than it would be to throw cash into the Chrysler sinkhole.
With all the talk of bailout exhaustion, I just don’t see the gov’t not bailing these guys out in perpetuity. It’s immoral and economically idiotic, but I have no faith that most politicians don’t have a price tag. Lard up any type of auto spending bill with money for zoos, paper manufacturers, recycling companies, etc. and the bill passes.
The $250B transportation spending bill from a few years ago included money for expanding zoos and building museums – not just the bridge to nowhere. The $700B bailout bill is even more ballsy – no attempt to cover up the giveaway that it is.
If you’re conservative, and you didn’t already loathe Bush, here’s another opportunity to wake up, get your red Mark-O marker, and cross the days off until 1/20/09.
Pch101:
If they could have found a buyer they probably would have, but nobody would buy Chrysler with its current liabilities.
I agree with you regarding a Chrysler only Chapter 7, I just wish the government did.
I hope this ordeal is embarrassing enough to seriously effect their future business.
If they could have found a buyer they probably would have, but nobody would buy Chrysler with its current liabilities.
The liabilities are an issue, to be sure, but adding the government into the mix has also repriced the deal. Now that Washington has its checkbook in hand, everyone is waiting to see how much that they can get.
If Cerberus had no way out, they would make other plans. That would probably involve a Chapter 7, but not before assets were sold off to others who would pay for them.
Nissan is clearly motivated to tap into the Dodge truck line and VW has reasons to be interested, so both would be good candidates to get involved. It may not be politically appealing to sell Chrysler off to foreign companies, but it makes more sense on a lot of other levels. If the Canadians can cope with an American company owning Air Canada (yes, that would be Cerberus), then Americans should be able to cope with Europeans and Asians carving up Chrysler like a Thanksgiving turkey.
Mikey,
What does the [ret] stand for?
Maybe if the UAW owned Chrysler the Republicans would stop demanding they accept minimum wage and start saying they’re “extolling the virtues of capitalism.”
@ bleach: ret = retired, it just my 3rd day and I still can’t believe it.
That’s what I was thinking. I hope congrats are in order.
Even if the (card check) is made into law, what are the chances the southern states workers would want to join the UAW?