Wednesday, December 03, 2008

Bailing Out Chrysler

When Cerberus Capital Management, LP, comes to Washington D.C. to ask taxpayers to bail out its failed investment, I can't help but think, "No!"

My objection doesn't arise from a lack of concern for the workers. I know some Chrysler workers who are likely to be laid off whether or not there is a bailout. Hate unions if you will, but auto industry job losses will cause extreme hardship for a lot of good people.

But here's the wrinkle. Unlike GM and Ford, Chrysler is not a public company. It's in the portfolio of a wealthy private equity firm:
Cerberus Capital Management, L.P. is one of the world's leading private investment firms. 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....

Cerberus holds controlling or significant minority interests in companies around the world. In aggregate, these companies currently generate over $100 billion in annual revenues.
That's right - a company that is supposedly a leader in providing financial resources and operating expertise to failing companies wants U.S. taxpayers to paper over its losses.

As a private company, Chrysler doesn't have to publish financial statements and it doesn't appear that Cerberus is going to open its books. We're told that CEO Bob Nardelli gets a salary of only $1, with no benefits, but he receives other income that's not disclosed - what is it, and why is it a secret? Given his glorious golden parachute from Home Depot, he doesn't actually need to be paid, but let's not pretend he's actually earning a mere dollar. Chrysler has told Congress that it expects an operating profit of $2.6 billion in 2010, with slightly lower profits in 2011 and 2001. If that's what they truly believe, why isn't Cerberus happily financing its own bail-out? Why is it suggesting that absent an infusion of taxpayer money, Chrysler is likely to enter bankruptcy?

If Chrysler is going to fail without additional working capital, it's not because Cerberus can't afford to pay. If it wished, it could sell part or all of one or more of its other holdings or borrow money against those holdings to keep Chrysler running. If it won't, it's safe to conclude that it doesn't think Chrysler is a safe or worthy investment. And if that's what it thinks, why should taxpayers subsidize their billionaire's version of "flip this house"?

Further, there's cause to question whether Chrysler can survive as an independent company. If it cannot, why should taxpayers bear part or all of the loss Cerberus faces as it carves up the company and sells off its viable parts? From what I can see of its present cost-cutting measures, it is not planning to remain independent - given the manner in which it has reduced its professional workforce, it's not even clear that it still has the capacity to develop a new generation of vehicles. At the same time, the announced round of job cuts will save a suitor a lot of trouble, as there will be a much lower level of redundancy if Chrysler is acquired by another auto company.

I would offer Chrysler loans on one of two conditions:
  1. Cerberus first sells Chrysler to a publicly traded firm, divesting itself of any and all interest in Chrysler (and yes, this still works as a subsidy to Cerberus, as it will increase the selling price); or
  2. Cerberus guarantees the money Chrysler borrows, putting up its portfolio of investments as security.
If they are asking that this money be loaned to Chrysler Holdings LLC, with no recourse against Cerberus itself, I would tell them to kiss off.


  1. Yet another logical and thoughtful column wasted. You really need to find some "hot button" issues to press and then "link" them to websites full of angry people. Then you could generate lots of traffic and we could make fun of the new posters.

    Maybe some pro-wrestling or ET type posts?

    Better yet, you could post something about reparations for slavery and then link to the websites of the proponents and opponents of same.

    Ah, the Flame Wars resume, I love the smell of napalm in the morning . . .


  2. There may be something to the pro wrestling idea.

    My most popular posts of all time, as measured by web traffic, were a post about Vince McMahon and an archive page that made a passing mention of a pygmy marmoset. I haven't quite figured that last one out.....

  3. ". . . an archive page that made a passing mention of a pygmy marmoset. I haven't quite figured that last one out....."

    I'd just file it away under the heading of "things man was not meant to know" and move on to the world of homicidal steroid abusing extroverts. : )

    The other approach you could take would be to launch attacks on celebrities with large web presences, you know the ones who have large numbers of low IQ but highly motivated fans, like Britney Spears or Ann Coulter, that would bring in the traffic.



  4. If Coulter's fans didn't get worked up about this....

  5. "we could make fun of the new posters"
    Hey now--don't make fun of this poster, please :)

    Another topic that might generate buzz: homeschooling is bad for kids. :) Believe me, the pro-homeschooling folks are HARD CORE. I tried to tell one about a student of mine who was "homeschooled" and literally couldn't sit in a chair and she practically called me an education nazi.

  6. a) Nah, we can't pick on you TeacherPatti, it's always more fun to pick on the "new" people, and you are a veteran. Besides, much like Aaron's, your comments tend to be thoughtful (I don't always agree with them, but they do tend to be thought out . . .) and thus don't generate much opportunity for vitrol.

    b) The "homeschooling" crowd, on the other hand, they are rabid and easily provoked. You might have a good canidate there. Plus, they tend to be hard core religious fundamentalists or rabid anti-government types . . . thus making any shots landed count against two groups . . .



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