In a Letter to the Editor in today’s New York Times, Cerberus CEO Mark Neporent fights back against the widely-held opinion regarding his employer’s relationship with Chrysler: you bought it, you pay for it. And yet, the CEO refuses to divulge the “retirement plans, charitable and educational endowments and individuals” who’ve invested in Chrysler, who he claims to be protecting (with our money). Until Cerberus names names, the equity firm’s insistence that taxpayers should be on the hook for their mismanagement of a dying car brand lacks any hint of credibility. And man, does it piss me off.
Why Can’t Cerberus Foot the Bill?” (editorial, Feb. 23) imposes an unfair double standard by suggesting that Chrysler’s shareholders should be treated differently from the shareholders of General Motors or Ford.
Cerberus’s investors are pension and retirement plans, charitable and educational endowments and individual family savings. Our investment guidelines limit the amount of capital committed to any single investment.
The Times has devoted countless articles to the criticism of excessive risk-taking by money managers. Yet in the case of Chrysler, it blithely opines that Cerberus should be “more pliant” and break rules intended specifically to control risk.
Why should these retirees, universities and charities, simply because they are represented by a private investment manager, be required to take additional risks or make additional investments, when G.M. or Ford shareholders are not?
Cerberus has already stepped up to the plate. After acquiring Chrysler, we immediately brought in a new world-class management team, which despite your criticism has executed many of the hard operational fixes that other American car companies are only now addressing.
To assist the administration in the restructuring of Chrysler, we agreed to give up our equity stake in Chrysler Automotive, convert debt to equity and subordinate $2 billion of other interests to the government’s financing. Cerberus is and remains fully committed to help create a sustainable future for Chrysler.
Mark A. Neporent
Chief Operating Officer
and General Counsel
Cerberus Capital Management
New York, Feb. 26, 2009
I think one of the worst things that happened in the country over the last thirty years or so was the death of shame.
“Why Can’t Cerberus Foot the Bill?” (editorial, Feb. 23) imposes an unfair double standard by suggesting that Chrysler’s shareholders should be treated differently from the shareholders of General Motors or Ford.
Cerberus’s investors are pension and retirement plans, charitable and educational endowments and individual family savings. Our investment guidelines limit the amount of capital committed to any single investment.”
Maybe they should’ve thought of all those retirement plans, charitable endowments, etc. before they decided to buy Chrysler.
I agree with the shill from Cerberus.
There’s no honest reason to demand that their investors be treated or to be asked to behave any differently then any investor in any other company.
The most fundamental tenet of this investment equality is that if you make bad decisions – you eat the loss. Not the taxpayers, or anyone else.
From the Editorial Reply, it sounds like Cerberus has some pretty sophisticated investors – they knew the risks…..
Detroit-Iron :
I think one of the worst things that happened in the country over the last thirty years or so was the death of shame.
Well said. I totally agree.
We all know why they aren’t investing in Chrysler. The company’s liabilities exceed its assets by a huge margin. It is a bankrupt (in all but name) failed company.
For example, California is a non-recourse state with regard to purchase money residential mortgages. You can walk away from your house and owe nothing. If you mail in your keys the bank needs to forgive the note, although your credit will be shot.
This is identical to the limited liability status that Cerberus has with regard to Chrysler. Cerberus can walk away from Chrysler and owe nothing, but their credit (reputation as a private equity firm) will be shot.
Now, say you owe $20 million on a house in California that is worth $350,000. Are you going to put good money after bad by paying that off, or just walk away? You are going to walk away; saving your credit isn’t worth $19,650,000. And that is what Cerberus is doing with Chrysler (whose ratio of assets to liabilities is similar).
However, instead of letting the bank take back the house, the stupid, gullible special interest owned government is bailing out Cerberus’s mortgage payments.
The only way to give anything related to Chrysler any value is to destroy the liabilities with a Chapter 7 and auction off the assets.
Chrysler is not a company that is too big to fail. Chrysler is a company that makes horrible quality, ugly cars with cheap interiors, has no future products, and only employs 36,000 people in the US (unfortunately some of those 36,000 are mobbed up with the UAW).
So who really cares who they are?
Still, here is something for all the flag wavers worrying about where the profits (losses) go:
We know that 19.9 percent of Chrysler is foreign owned, since Daimler owns 19.9 percent.
It would not be surprising at all if fully revealing the identities of those with an equity interest in Chrysler through various Cerberus funds brings the foreign ownership above 50%.
It is nice to have the chance to do some Cerberus bashing – but the argument he makes is absolutely correct. As I also said before – why is everybody accepting that the GM shareholders do not have to contribute additional money, while Cerberus should? Only because with Cerberus we in fact can identify who owns the company, but with the GM shareholders we can’t?
The bailout as such is wrong – but if the government agrees to do it, why should Cerberus be treated differently from the GM shareholders?
@ Detroit-Iron:
I completely agree.
Does Mr. Neporent honestly think we are all that stupid? Cerberus makes a healthy profit for their investors and for themselves. I see nothing to stop them from investing some of their own money or finding new investors to prop up their fraudulently negligent crappy investment.
As I also said before – why is everybody accepting that the GM shareholders do not have to contribute additional money, while Cerberus should? Only because with Cerberus we in fact can identify who owns the company, but with the GM shareholders we can’t?
Because Chrysler is owned by a private equity firm; it is not a public company.
The expectations for return for PE firms are aggressive, which contradicts the “widows and orphans” argument on its face. Their clients are high net worth individuals and large institutional funds. The average person wouldn’t have enough money to invest with a group like this.
Also, unlike GM, Cerberus’ management would have contributed capital and structured a return that would have given themselves far more upside, had the deal been successful, than would be the case for a comparable publicly traded company. As the parent, Cerberus is supposed to serve as stewards to Chrysler in a way that the management team of a public company does not. It’s a different business model, and they don’t compare.
This might be something to look into:
Even if the government continues to bail out Chrysler’s losses I think that Cerberus needs to either sell Chrysler or have it go bankrupt.
Right now Cerberus is refusing to cash out those who are fund holders in Chrysler related funds.
However, at some point Cerberus is contractually obligated to cash those fund holders out.
If Chrysler is still on life support at that time then Cerberus is going to have to give its fund holders some amount of money (I’m sure there is a contractual formula between Cerberus and its fund holders for valuing investments) for a company that is worth nothing.
Cerberus does not want to do that.
On the other hand, if Chrysler has gone Chapter 7 then its value is obviously 0, so Cerberus will have to give nothing to the fund holders, and if Chrysler is sold its value will be the sale price, so Cerberus will only have to give what Chrysler sold for to the fund holders.
The discussion has gone off track.
The question is, if the Federal government is giving money to someone does the taxpayer have a right to know (in detail) who that someone is?
Perhaps the CIA, DOD, or State Department, etc. can make a national security argument not to reveal where certain payments go for some of their operations, but the Treasury sending money to a US autofirm?
Perhaps a Freedom of Information Act request is in order. Does the Treasury Department even know?
“Cerberus has already stepped up to the plate. After acquiring Chrysler, we immediately brought in a new world-class management team, ”
Who exactly is Mr. Neporent referring to? They have world class lobbyists, but I don’t see a world class management team anywhere near Chrysler.
@Detroit-Iron :
I think one of the worst things that happened in the country over the last thirty years or so was the death of shame.
Best line of the day, probably the whole year.
I really have to wonder how the guys at Cerberus decided to buy Chrysler? Over a lot of drinks on a Daimler credit card it must have been asked, “How would you guys like to own a car company?!”
I think one of the worst things that happened in the country over the last thirty years or so was the death of shame.
Well said. Wish you had been at my friend’s cottage two weeks ago. A group of longstanding friends and I had a lengthy discussion on just this subject.
I was born in the mid-60s and it seems to me that it disappeared in my lifetime.
@ Detroit-Iron :
I think one of the worst things that happened in the country over the last thirty years or so was the death of shame.
Couldn’t agree more. But it wasn’t just the death of shame, it was also the death of honor.
Accountability is missing and presumed dead
Morea :
March 2nd, 2009 at 11:45 am
The discussion has gone off track.
The question is, if the Federal government is giving money to someone does the taxpayer have a right to know (in detail) who that someone is?
Perhaps the CIA, DOD, or State Department, etc. can make a national security argument not to reveal where certain payments go for some of their operations, but the Treasury sending money to a US autofirm?
Perhaps a Freedom of Information Act request is in order. Does the Treasury Department even know?
I have not read that the government has required GM to present a book showing its shareholders. Technically, this could quite easily be procured. So, in your view, with Chrysler the Gov. has all right, to know exactly who owns the company, but with GM it is alright to ignore it?
TireGuy, I think you answered your own question.
With GM it is not hard to find out who owns it and anyone can buy some if they like. It is ‘public’.
With Chrysler the owners are a well-kept secret and the average taxpayer cannot buy in if they choose to. It is ‘private’.
As Farago has pointed out, this is a very significant difference, especially when dealing with public money. Money that is ‘public’, i.e. the public should know how it is spent.
A FOIA may come back with the owners’ names redacted. But this would still answer the question of whether the Treasury Department has even asked who the true owners of Chrysler are. It would ease the feeling that they are just sending the bailout checks to some post office box in NYC.
I have no idea who owns Chrysler, but believe I have stood below that statue and know where it is!
Morea :
March 2nd, 2009 at 8:53 pm
TireGuy, I think you answered your own question.
With GM it is not hard to find out who owns it and anyone can buy some if they like. It is ‘public’.
With Chrysler the owners are a well-kept secret and the average taxpayer cannot buy in if they choose to. It is ‘private’.
As Farago has pointed out, this is a very significant difference, especially when dealing with public money. Money that is ‘public’, i.e. the public should know how it is spent.
A FOIA may come back with the owners’ names redacted. But this would still answer the question of whether the Treasury Department has even asked who the true owners of Chrysler are. It would ease the feeling that they are just sending the bailout checks to some post office box in NYC.
So the fact that someone anonymously can buy shares in GM, even if it is a fund like the ones invested in Cerberus, entitles him to get a bailout, while the same anonymous shareholder of Cerberus does not deserve it?
If it is public money which is spent – where is such spending “public” once it goes to GM? Where is the shareholding of the US in GM, or the represenation on the BoD of GM? Did the US not just throw 13,4 bn Dollar to GM for nothing in return? Any changes in the management board? Any commitment by any stakeholder?
By the way: money which would go to Chrysler goes to Auburn, not NY. The shareholders of Chrysler only participate indirectly – the same with GM shareholders.
Again: I do not see where the major difference is.
TireGuy:
I want to buy some of the General Motors Corporation. Where do I go? The New York Stock Exchange.
I want to but some of Chrysler LLC. Where do I go?
(Also, calling both the owners of GM and Chrysler “shareholders” blurs the line between public and private ownership. Notice that the letter cited in the main text calls the owners of Chrysler “investors”. As a lawyer, the author is careful with his wording.)
LOL. Having taxpayers foot the bill … without telling who is actually obtaining the (huge amounts of government) money. Ah, this is almost worse than GM.
Really that is the thing. We want to know who, and yes it matters. It is painfully obvious that some group or individual has gone to great lengths to keep the majority owners of this company unknown to the general public; this has always bothered me, not just when they where in financial trouble. Frankly there are some “groups” or what have you that John Q. American would say, “go to h*LL” if they asked for help in this situation. It seems to me that all this dancing around it, shows we would not want to help if we knew who they were. Spin all you want but it seems “Cherberus” is pretty self conscience about who they are. Baring any other info the popular opinion on this will be no bail out, now weather anyone cares what we think enough to really represent us is yet another problem.