Wild Ass Rumor of the Day: Cerberus Sells Chrysler, GMAC

wild ass rumor of the day cerberus sells chrysler gmac

The internets are abuzz with the "revelation" that Chrysler-owner Cerberus has sold off more than half of its investment in the ailing American automaker and lender GMAC to about 90 other investors. The only problem with this story: timing. As Reuters puts it (and The Detroit Free Press neglects to mention) "The timing of those transactions was not clear." IIn other words, it's a non-story. But not completely. For one thing, Cerberus' limited exposure to the two companies makes it easier for them to bail; it explains Cerberus' stated decision not to top-up GMAC with the $600m it needs to stave-off bankruptcy. Second, the story's original source, The Financial Times, paints an unintentionally humorous portrait of unbridled greed. "Most of those joining the GMAC deal in 2006 did not have much time to do their due diligence. Instead, Cerberus invited about 50 hedge funds to its Park Avenue office for a presentation by its chief administrative officer, Seth Plattus. 'It was a 'trust me' kind of trade,' says one investor, who bought a small piece of GMAC. 'You had no time to do real due diligence. But it was a hot deal and everybody wanted in as part of the gang.' Many of the people who took part in the deal were friends of Steve Feinberg, founder of Cerberus, and said they invested as a sign of faith in him… 'There was an element of the greater fool theory to it.'"

UPDATE [via Automotive News] "Cerberus has not sold any equity in Chrysler," said the Chrysler official speaking on condition of anonymity. "There are always co-investors at the time of the transactions so when they originally purchased 80.1 percent of Chrysler, there were co-investors at that time. They still own 80.1 percent."

Join the conversation
2 of 7 comments
  • Johnny ro Johnny ro on Jun 02, 2008

    81.1%, 19.9%, these are accounting driven numbers. 20% or more means you use equity method, unless you demonstrate you have no significant influence over the investee. Significant influence means what it sounds like. You speak, they listen and seriously consider your wishes, maybe they have to arrange votes around you if need be. Equity method means you record your proportionate share of income/losses. This is bad because you have income volatility and well, losses in this case. Next step down accounting decision tree, absent influence, you record investment at cost, then merely record regular dividends as income, if ever. This must be what they are doing. So they game it by keeping 0.1% under 20%. Its deliberate bad accounting, surprised their auditors let them get away with it. Imagine, Cerberus has no significant influence over Chrysler. Yeah right.

  • INeon INeon on Jun 02, 2008

    I sure would like to read more negative Chrysler 'news.' Please oblige with tomorrows WARotD.

  • ToolGuy "We’ll see what happens with Haas." I wonder what happened with Haas?
  • ToolGuy Auction is 2 days away now. I've been setting aside some spare change here and there - have you? (You forgot again, didn't you?)
  • Luke42 I like the Metris quite a bit, but I never bought one.Two problems kept me from pulling the trigger:[list=1][*]It was expensive for what it was.[/*][*]For the price they were asking, it needed to have a plug for me to buy it.[/*][/list=1]I wanted a minivan that could tow, and I test drove one and liked it. The Mercedes dealer stocked both cargo versions and conversion vans. It was a nice vehicle, and I really wanted one for a while.This is the inevitable fate of cars that I like, but don't actually buy.
  • Garrett I would have gone for one of these if it had AWD. If they had offered it, it could have done far better.
  • Michael500 Sorry, EV's are no good. How am I supposed to rev the motor to impress girls? (the sophisticated ones I like).