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

[CeJ <jannuzi@xxxxxxxxx>]

These two articles answer my own question about the finance division.
Cerberus bought GMAC. Now it seems Cerberus might combine GMAC and
Chrysler Financial and float or partially float that (retaining a
controlling share). What's interesting here though is that apparently
they may want Chrysler in order to sell off but also combine finance
companies to re-capitalize GMAC. Looks like the loan problem in the US
goes way beyond sub-prime loans for McMansions and pre-fab human
storage sheds.  More importantly, it looks like at least some union
leadership has bought into still yet another hegemony renewal project
(with union cooperation, AMERICAN private can control the world of
profits!). No doubt some of these so-called leaders think that if
publicly listed American companies and their owners and management
can't protect American interests, American private equity magicians
CAN. Most people who work for Chrysler already know the awful truth.

Key quote from article #2:

> > They could resort to the dreaded "strip and flip" for which
investment firms are so well known. Cerberus could disassemble
Chrysler and hold their own fire sale, divesting themselves of most of
the current operations. It wouldn't take much for Tower Automotive to
absorb the profitable Jeep division. Jeep and/or other automotive
divisions would go to the highest bidder, most likely a Chinese or
Indian company wanting to set up a U.S. operation.

It's important to keep in mind that Chrysler Financial is the crown
jewel in Chrysler's moth-eaten Empire. It's the only other part of the
Chrysler Group that actually makes money. Cerberus already owns 51
percent of one finance company, GMAC. Would they take the cash they
get from Daimler as part of the deal, use it to bail out GMAC then
roll it and Chrysler Financial into The Mother of All Finance
Companies? You betcha.>>end of quote

1. http://www.marketwatch.com/
http://www.marketwatch.com/news/story/gm-ceo-doesnt-see-auto/story.aspx?guid=%7BF387A560%2D89E2%2D40D9%2D9AC7%2D2938E8A6B089%7D


GM CEO doesn't see auto industry going private
By John D. Stoll
Last Update: 6:46 PM ET May 17, 2007

DETROIT (MarketWatch) -- Three days after Chrysler Group struck a deal
to be acquired by private-equity giant Cerberus Capital Management,
General Motors Corp. Chief Executive Rick Wagoner said Thursday he
"(doesn't) see a mad rush to privatize in the auto industry."

Wagoner said, however, that he does expect to see further
consolidation in the auto industry, even though recent efforts have
been largely unsuccessful. GM, in particular has struggled on that
front, unwinding alliances with Japanese companies and backing out of
an alliance with Italy's Fiat SpA (FIA) in recent years.

The GM CEO, answering questions following an address to the Inforum
women's club here, said he sees opportunities for GMAC, the financing
arm in which GM sold a majority stake last year to Cerberus, to "work
together" with Chrysler Financial.

Wagoner said it was "premature" to say how closely Chrysler Financial
and GMAC could collaborate, though he noted that GM, which still has a
49% stake in GMAC, has some "input" in determining how much
collaboration there will be between the two lending companies.

2. http://www.thetruthaboutcars.com/?p=3739

Chrysler Suicide Watch 15: Does Cerberus' Chrysler Purchase Portend a
New Paradigm?

By Frank Williams
May 14, 2007

In Greek mythology, Cerberus guarded the gates of Hades. Anyone who
challenged the three-headed dog was ripped to shreds. In American
business, the Cerberus private equity group guards the investment
firm's cash. Unlike the mythical canine, they don't wait for foolish
interlopers. They seek out struggling companies and rip them to
shredsâ sorry, "turn them around." For reasons yet to be revealed, the
United Auto Workers (UAW) have welcomed today's announcement that
Cerberus has purchased Chrysler from its German overlords. Is someone
about to teach an old dog some new tricks?

Ever since DaimlerChrysler's management announced they would
practically give Chrysler away explore all options for resolving
Chrysler's financial problems, the unions have fiercely opposed the
automaker's sale to an equity fund. UAW President Ron Gettelfinger
listed it as the least desirable scenario possible.

Canadian Auto Workers' (CAW) president Buzz Hargrove was more
succinct: "We're absolutely opposed to any private-equity firm. Anyone
who takes [Chrysler] over has to respect our bargaining agreement and
respect our members. There's no room for cutbacks."

Cerberus is no stranger to union intransigence. The group's play for
bankrupt auto parts supplier Delphi floundered of the rocks of the
UAW's refusal to make any significant wage, pension or health care
concessions. Like the belligerent, limbless knight in Monty Python's
Holy Grail, the severely denuded Delphi workforce was itching for a
fight. Cerberus walked.

Now that Cerberus has purchased Chrysler, the UAW suddenly wants to
come across as a team player. In a UAW press release, Gettelfinger
stated, "The transaction with Cerberus is in the best interests of our
UAW members, the Chrysler Group and Daimler. We are pleased that this
decision has been made, because our members and the management can now
focus entirely on the development and manufacture of quality products
for the future of the Chrysler Group."

Just how willing the UAW is to "focus onâ the future of the Chrysler
Group" will become clear this September, when contract negations
begin. Earlier today, DaimlerChrysler Chief Executive Dieter Zetsche
said the sale was "not conditional on any aspects of a collective
bargaining agreement." So the gloves are still offâ especially over at
the CAW.

The CAW's president, who represents about 10k Chrysler workers, is
adamant he "can't imagine anything to convince me this is in our best
interest." Buzz told the press that he was upset because no one
contacted the CAW about the pending Chrysler - Cerberus deal. "There
should have been some dialogue."

Dialogue. Right. In fact, the Mexican standoff between Chrysler's
unions and its owners continues. Except this time, the union faces
Cerberus' fangs.

If the unions threaten to strike, they may have to put up or shut up.
Cerberus is flush with cash. With a (relatively) small amount of cash
invested in Chrysler, Cerberus could let the plants sit idle until the
unions cave. And if the unions don't?

They could resort to the dreaded "strip and flip" for which investment
firms are so well known. Cerberus could disassemble Chrysler and hold
their own fire sale, divesting themselves of most of the current
operations. It wouldn't take much for Tower Automotive to absorb the
profitable Jeep division. Jeep and/or other automotive divisions would
go to the highest bidder, most likely a Chinese or Indian company
wanting to set up a U.S. operation.

It's important to keep in mind that Chrysler Financial is the crown
jewel in Chrysler's moth-eaten Empire. It's the only other part of the
Chrysler Group that actually makes money. Cerberus already owns 51
percent of one finance company, GMAC. Would they take the cash they
get from Daimler as part of the deal, use it to bail out GMAC then
roll it and Chrysler Financial into The Mother of All Finance
Companies? You betcha.

In fact, it seems logical that Chrysler Financial is Cerberus' "real"
target in all this. After all, what does a private equity firm know
about designing, engineering, building, distributing and selling cars?
Nothing. This brings us back to where we were before Cerberus made its
move: Magna.

Canada's Magna International is all about building cars. They were the
only bidders for Chrysler talking about working with the unions,
building new products, yada, yada, yada. Only owner Frank Stronach was
adamant that he didn't want to use his own money. Soâ

Cerberus sells the automaking end of the business to Magna.

It's not a bad plan. Let Frank sort out the UAW, Cerberus banks some
big bucks with GMAC and Chrysler Financial (Cerberus LOVES cash flow)
and turns Chrysler into a lean, mean, distribution machine. Chrysler
could buy products from China, India, Canada, wherever, and then use
Chrysler's dealer network to move the metal.

Does all this mean Frank Stronach will become the legendary demi-god
who tamed Cerberus? Stay tuned.