Re: [A-List] Chrysler at the Private Equity Gates of Hell

[CeJ <jannuzi@xxxxxxxxx>]

To WL

I'm with you man, that was one interesting post. Worth a couple re-reads.

I said in 2000, funds that had proprietary control of securitization
and hedging were the future of 'speculative investing'. The most
obvious aspect for your average investor is that as the funds that
pursue these go for smaller and smaller investments, the more the
returns converge on the historic averages of mutual funds.

I also said that private equity would come to act as still yet another
layer of control  by acting as holding companies for the companies
most Americans and OECD citizens work for. And even publicly listed
companies are into these post-modern aspects of capital. Look at GE.
Look at AIG. And just what is Buffett's Berkshire Hathaway. It's a
proto everything.

The situation at Chrysler is different than Renault-Nissan because of
this private equity colossus, Cerberus. Renault, which is an inferior
auto manufacturer to Nissan, sent their funny little man over to Japan
to cut Nissan loose from its banks and suppliers and ended up selling
off only a limited amount of Nissan (and for all I know private equity
owns those pieces). The Renault guy fit in so well over here, he even
started to look Japanese. Or , well, at least like Mickey Rooney
playing the character Yunioshi in 'Breakfast at Tiffany's'.

The reasons I query what is left to sell off is: One, now that private
equity holds it, IT ALREADY HAS BEEN SOLD OFF. Two, didn't another
private equity group already get the credit division? Three, who else
wants to buy or hold Chrysler's excess capacity or its legacy costs,
including the health care and retirement? The only reason capitalists
want a retirement fund is to loot it (and look what the US federal
government does to Social Security).

There could be something really really really big happening here.
There could be emerging a network of manufacturers that are owned by
private equity. They might also want the networks of dealers for auto
retail. And the credit divisions, the most profitable aspects of the
auto business in the credit bubble--up to now anyway.

The manufacturing will become even more 'integrated' than it already
is. And the big brands, Ford, GM, D-B, Toyota, VW, Nissan, etc. will
draw on most of the same manufacturer-suppliers. Only at that last
level of assembly does the brand differentiation emerge.

So in effect the private equity interests are setting up 'keiretsu',
but as a global network of  capital, credit, and CONTROL. No Japanese
banks (which were and are publicly listed companies). Watch out
Toyota, Nissan and Honda! Here come GM, Ford, Chrysler and their
private equity demi-gods!

We are seeing the renewed future of American hegemonic capitalism, and
most of us don't even know what it's name is or what it is even.

It seems to me that private equity (and investment banks, which also
act as private equity) is perfectly happy acting as a holding company
of 'non-cyclicals', but their biggest profits are in re-floating
companies on 3-5 year plans. Immediate profits come from 'carving up'
and 'selling off', plus the fact that as a de-listed, swallowed up
company, what would have been dividends go to the new owners, which
also act as overlords to the new management (or they act directly as
management). But the profits at the end of 3-5 years are supposed to
come with a public re-float (and here is where the investment banks
circle like sharks).


What sort of Chrysler can they float without its vertical
manufacturing capacity or its credit division? Who would want to buy
the stock? Well investors might say that without that capacity, it is
a Chrysler without the legacy costs. The private equity owners must
have what they think is an almost sure fire plan. Of course they got
Chrysler cheap (look at the much higher prices of internet-related
acquisitions at Google, Yahoo, MS and News Corp/Fox, even in what is
supposed to be a post-internet bubble environment). The low price
Chrysler went for gives D-C an immediate blip in earnings and what is,
in effect, a capital injection, and the guys at Cerberus are free to
try various ways to get that 20-30% return on their investment.

I've got my own private equity story to tell--about News Corp. selling
off to a private equity company its TSL Education Ltd., which
publishes Times Higher Education Supplement and two other publications
(including the more lucrative Times Education Supplement). The problem
in the plan, well I don't know what the problem was, but the first
private equity company has now sold off TSL to still yet another
private equity company. Perhaps a management buy out is now in the
offing? It certainly doesn't fit with the usual 3-5 year framework, as
the first private equity owners only had TSL for a year and a half.

The future of private equity is no longer just ownership of government
contracting (i.e., military), controlling liberalization of already
cartelized or even monopolized industries, or buying up on the cheap
distressed banks and insurance companies in Asia. The beast is back,
and it is one hungry beast.



CJ