As regular readers know, The Truth About Cars is working hard to try to find out who owns Chrysler—now that [ex] President Bush has provided $3b worth of no to low-interest loans to the technically bankrupt automaker. And now that this selfsame beneficiary of our government’s largess is looking for another $4b loan. And the rest. In our pursuit of this information, we are aided by members of our Best and Brightest who also believe that we should know exactly whom we are subsidizing. Are they the “retirees, teachers, municipal workers and ordinary citizens” that Cerberus claims? Or are the 100 or so unnamed investors members of hedge funds, perhaps from abroad?
A tipster provided the names of four hedge funds that supposedly participated in Chrysler’s purchase. I went to “print” with this information, confident in its integrity. I now have reason to believe that our campaign to “name names” has encouraged an over-zealous response. I have therefore withdrawn those names until I can confirm them with another independent source. I apologize for the mistake and promise to get this information before the next round of bailout “negotiations.”
Meanwhile, I’ve deleted the comment referring to the named hedge funds. And another member of our B&B writes with a good point.
Rather than concern about the foreign owners of Cerberus if I was a US tax payer I would have a great concern that if the FIAT deal is consummated ChryCO would be 35% Italian and 19% German. 50%+ foreign ownership of a company receiving federal dollars is difficult for me to conceive.
[Thanks to you know who you are. Any more info, please email robertfarago1@gmail.com]
To be fair, I’m sure there’s plenty of international money holding public shares of GM, Ford, and every other “blue chip” American stock. You don’t see GM going to its shareholders, hat in hand, asking for additional money to prop up the failing business. (Do you?)
I suppose any one of these firms, including Chrysler, could “borrow” from the shareholders by issuing new stock, and thus diluting the current owners. However, I’m not terribly confident the stock market (for GM / Ford) or private equity (for Chrysler) would react positively to such a thing. There’s not a large, pent-up demand for automotive shares these days.
The most interesting factoid about Chrysler is this business about their former German overlords writing the value of the business down to zero. Really zero? How did they came up with that number? The factories, the patents, the tooling, the dealer network, all of these things are worth something. That must mean there’s a similar mountain of negative things (loans, warranty obligations, potential lawsuit settlements) that drop it to zero. An interesting question is what happens if it’s less than zero. If Chrysler goes into Ch. 7, are the former German overlords, or Cerberus, or any of the other “owners” on the hook?
We know, if GM goes under, the shareholders get wiped out, but their downside at least stops there. With Chrysler, who knows?
Dan,
As far as I can tell, Cerberus mortgaged the entire business after buying it. All of it. Like Ford– up to and including the logo.
Keep pulling on that thread!
Foreigners heart Chrysler too, so much that they want it dead and not alive.
Great work! I think it is important to expose these investors.
@ Dan,
It isn’t about Chrysler or Cerberus borrowing from its investors. Of course no one in their right mind would dump more money into that pit. This is about us shoring up their investment. They invested their money. They took a risk. They should either lose that money or put in more if that is what is needed to get a return.
Cerberus tried to paint these investors as everymen, schools, hospitals, baby seals, etc. When, in reality, they are going to turn out to be hedge fund vultures and worse.
Also, I don’t think there is any question of whether the net value of Chrysler is negative.
@RF:
It is typical for hedge funds that they put most of the debt they took for buying a company as a mortage on the new bought company.
And that is also why these companies don’t have any liquity left if the credit lines run out or the as now in a financial downturn the banks won’t extend them.
A lot of companies that got bought by hedge fonds are now in insolvency, even so over here in Germany.
It is simple: A Hedge Fond is buying a company with money that they don’t really have by putting most of the debt in the books of the new bought company. If the company goes bust it also vaporises most of the debt with itself, so the thing is more or less a winning game for them.
This is why in Germany they have been called “Heuschrecken” aka “locusts” by the left wing politicians.
Look at what Cerberus did with Mervyns.
First they separated the retailing operation from the real estate. It’s my understanding that it had been a single entity before Cerberus bought it. Then the retailing operation and real estate operation ‘agreed’ to very high rents and conditions along the line that high rents would continue regardless of retail sales. It’s typical, from my understanding, that rent goes up and down somewhat depending on the occupant’s business.
If we pause here, Cerberus now has a real estate package with exceptionally high rate of return and some unusually tight requirements that benefit the owner of the real estate. So next they sell the real estate. I don’t know who bought it or for what prices(s), but it would seem to me that they got a good price given the advantages relative to other normally run properties.
Then they dumped the retailing operation, which was not viable given the high expenses plus sinking market. Then the retailing operation goes down putting many long-time workers on the street, and leaving the real estate owner(s) with empty stores in an impossible market.
Maybe Mervyns would have failed anyway in this economy, but Cerberus’ methods put the retailing operation at a substantial disadvantage even before that. I haven’t read anywhere that Feinberg liked to play with cars when he was a tot, and just always wanted to own a car company, etc., so I assume he and his bunch wanted to strip out what they could and leave a carcass for some sucker in this case too.
With Toyota announcing almost a $5B loss, I kinda doubt there’s much use in keeping Chrysler on life support.
“Look at what Cerberus did with Mervyns. First they separated the retailing operation from the real estate.”
They did this with Chrysler too, at least with the headquarters. A seperate holding company was set up to cut it from Daimler, then they mortgaged it, and rented it back to Chrylser. I would assume that we will find out they did it with the factories as well.
seanx37 :
“They did this with Chrysler too, at least with the headquarters. A seperate holding company was set up to cut it from Daimler, then they mortgaged it, and rented it back to Chrylser. I would assume that we will find out they did it with the factories as well”
I think that Chrysler sold the headquarters long before Daimler even got there hands on the company.
Unbeknownst to many, the Netherlands are the 4th largest direct investor in the U.S. (actual numbers may be higher according to a lady of ABM AMRO who I met at a cocktail party ..)
It is not surprising that a Dutch company has a finger in that dyke also.
I put a finger in a dyke one time, she was real pretty.
It isn’t particularly relevant whether Chrysler is owned domestically or not. The bailout is meant to avoid a shock to the US economy, and isn’t about cars or domestic investors.
Rather than concern about the foreign owners of Cerberus if I was a US tax payer I would have a great concern that if the FIAT deal is consummated ChryCO would be 35% Italian and 19% German. 50%+ foreign ownership of a company receiving federal dollars is difficult for me to conceive.
GM has no problem with that train of thought.They go begging around the world. As reported, they even hit up the Thai government for money ….
Bertel,
It would be appropriate for Dutch concerns to have a stake in Chrysler, since apparently Americans have always run to the Netherlands when looking for quick cash. Perhaps, then, we can consider the US government’s loan to Chrysler to be an indirect way of paying them back for fronting the US all that cash 230 years ago in the Revolutionary War…
Interesting stuff, RF. I look forward to your updates.
Mr. Schmitt and Mr. Farago
GM has no problem with that train of thought.They go begging around the world. As reported, they even hit up the Thai government for money ….
They also got money down here. And the day after they fired 1000 from one of their factories. I mean, except appointing a car czar or something how can government control the way the company uses the money? I bet for example that the money they got down here is somewhere up in Michigan by now.
As I said in another thread, commenting on Mr. Schmitt’s observations, at least Nissan is asking for money in the US. Who’s to say Toyonda won’t follow their lead. Now, do try non-Japanese car makers to get money from the Japanese government.
Rather than concern about the foreign owners of Cerberus if I was a US tax payer I would have a great concern that if the FIAT deal is consummated ChryCO would be 35% Italian and 19% German. 50%+ foreign ownership of a company receiving federal dollars is difficult for me to conceive.
And then I read the comment above. I mean, it’s ok for Nissan to get American money, for Ford, GM, VW, Fiat, Renault etc. (not to mention the auto-parts sector, 80% foreign-owned) to get Brazilian money, you’re fighting for everybody to get Italian and French money, GM will get Thai money, the Japanese won’t give up their right to give their money only to Japanese companies.
Jeez. Nobody down here raised the nationalist flag. Sorry, but if might respectfully disagree (I’m trying not to be accused of flaming here), that smacks of xenophobia.
Oh yeah, right, in America there ain’t no ugly nationalist thuggery, imagery, thinking, hyping, political party. You invented another term for it, but it’s like, totally different: Patriotism. (try to read this with a little bit of irony. Again, don’t want to flame. Just express an honest, but strong contrary opinion)
jwolfe beats me to the line. Damnit, thunder stolen again.
50%+ foreign ownership of a company receiving federal dollars is difficult for me to conceive.
indeed
@ tesla deathwatcher:
“The way things have gone, the bailout funds have done nothing to help Cerberus. The only ones at Chrysler to benefit from the bailout funds are those who were paid for a few more months to keep the lights on.”
You mean the ones who own Chrysler’s Auburn Hills office building and potentially others and receive rent payments from Chrysler?
Leasing back your own buildings isn’t rare. It’s a common financial “tool” called an off-balance-sheet lease. Even relatively solvent companies like eBay do this and these are clearly articulated in the company’s annual report.
The primary purpose is usually to prop up the Return on Assets calculation used to analyze stocks… the buildings are no longer assets, they are an expense and thus deducted from taxes as an operating exense rather than depreciated over time. At least this is the little I remember from my accounting classes. It’s been a while.
Of course, a tax-deductible expense is only valuable if, unlike Chrysler, you have a profit on which to pay taxes. My guess is that in Cerberus’s case the intent isn’t quite so well-intentioned, as indicated by others.
Additionally, I would imagine that if Chrylser’s vehicle operations goes Chapter 7, the holding company will then own the property and the Cerberus leaders will still have something on which to retire.
Then again, what will be the value of a bunch of huge empty buildings in the Detroit suburbs when there are no operating businesses left for miles around? Scrap metal? No-income housing?
Chrysler is owned by the Illuminati and the Knights Templar.