By Robert Farago
February 15, 2008
You know that perfect storm that I keep predicting for Detroit? Keep in mind that the metaphorical meteorlogical phenomenom requires a confluence of jumbo-sized atmospheric disturbances. So, what have we got? Well, even if we restrict our forecast to Chrysler, we've got parts supply problems, too many products, too many bad products, too many dealers trying to sell bad products, not enough customers willing to buy bad products, lousy marketing, killer competition, a private equity firm with all the patience of a crack head, and a CEO whose M.O. is cut and run. Add to this looming prospect of GMAC going belly-up. Bloomberg [via Automotive News, sub] reports that Cerberus founder (and current Chrysler owner) Stephen Feinberg sent a letter to investors warning that GM's finance arm faces "substantial difficulty" if credit markets do not improve (what are the chances?). Last year, GMAC lost $1.6b in the first quarter, and $724m in the fourth. If GMAC's mortgage and car loan biz sucks to the point of collapse, Chrysler Financial isn't likely to be hale and hearty. At some point, Cerberus will have to switch into dump mode. They'll throw the automaker and their two financial units into Chapter 11. What would happen to GM, which owns 49 percent of GMAC and depends on the finance arm for cheap car loans? That's another story…
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POWERED
February 15th, 2008 at 9:04 am
I wonder how Ford’s credit arm is doing? Wasn’t the financing division the bright spot of their revenues for a while?
February 15th, 2008 at 9:26 am
Bloomberg.com take on this story (non-sub)
FTA: “The good news is that we bought GMAC cheaply enough so that even with all the bad news in the mortgage market and credit markets, we still are in reasonable shape with our overall investment,” Feinberg, 47, wrote in the nine-page letter.
The letter outlines worst-case scenarios for investors, Cerberus partner Tim Price said in an interview today.
“The point of the letter was to underscore the risks in the investment,” Price said, referring to GMAC. “We don’t expect everything we outlined to go wrong and we remain bullish on the investment.”
February 15th, 2008 at 10:31 am
Well it’s nice when GM tells the truth once in a while.
February 15th, 2008 at 11:09 am
Caption for the picture:
Dieter: “Zo, I told ze customer, dat’s not a defect, dat’s superior German engineering!”
February 15th, 2008 at 11:49 am
Cerberus, like Enron, think they are the smartest guys in the room. Hubris will bite you in the ass every time.
February 15th, 2008 at 12:32 pm
And it couldn’t happen to any nicer guys
February 15th, 2008 at 1:38 pm
Gardiner,
There is a big difference with Cerberus. They are doing it with their own money. I say that means they can act as cocky as they want.