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

chrysler suicide watch 15 does cerberus chrysler purchase portend a new paradigm

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 shreds– 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 [s]practically give Chrysler away[/s] 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 on… 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 off– 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. So…

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.

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  • Kjc117 Kjc117 on May 17, 2007

    Dodge and Jeep are the only upside brands of the group. Chrysler is definately the turkey. I would sell it to the Chinese or Indians in a heartbeat.

  • Jonathansalembaskin Jonathansalembaskin on Jun 25, 2007

    The challenges facing Chrysler extend far beyond (and deeper than) those issues the financial gurus at Cerberus could fix with any 'strip and flip' strategy: top-line sales. The branding problems in the automotive sector are the beast that haunts every mfg, and I have been wondering lately whether this buyout will be the prompt for one company (Chrysler) to really come to terms with it. Sponsoring a web page for a new vehicle on MySpace, or hosting a virtual showroom in Second Life is not going to rescue the business, in spite of how much glowing publicity the marketing media gives such shenanigans. I'm guardedly optimistic Cerberus will do something different and smarter here...

  • 01 Deville https://www.cargurus.com/Cars/new/nl-New-Toyota-Sienna-Madison-d308_L39766
  • Lou_BC This would be a good colour for anyone that would actually use their truck offroad, on gravel roads, in the winter or poor visibility situations.
  • EBFlex “getting a full charge in just about three hours or so. Not that it would’ve mattered if I couldn’t charge – I’d just run on gas.”And this folks is why PHEVs are the future and pure EVs will remain vanity products for the rich.
  • Pmirp1 Simple. Electrics are not yet prime time. In time, they may become the norm. For now, they are still the new kid on the block. A curosity. A status symbol. They are not the work horse of American life. Everyone knows that. You buy it because it is fast. It makes you feel like, you know, Prius like 10-15 years ago.Electrics have improved. Tesla is without a doubt the standard bearer. Still, long way to go before they can be your ONE vehicle. So companies charge more because these things are coooool. Not real.
  • Rich Benkwitt I’ll take that red and white 2 door and I guess the 4 banger so I can have the manual tranny just like my 1969 Bronco. I have my Wildtrak on order now waiting impatiently!
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