Editorial: Chrysler Suicide Watch 40: GM Merger A Done Deal. Or A Breakup. Or Something.

Robert Farago
by Robert Farago
editorial chrysler suicide watch 40 gm merger a done deal or a breakup or

The auto news biz is abuzz with rumors of Chrysler’s endgame. Even a quick scan reveals that there are more potential scenarios and pitfalls than Operation Eagle Claw, America’s ill-fated attempt to rescue its hostages from Iran. Cerberus trades Chrysler to GM for GM’s remaining share of GMAC. Chrysler sells Jeep to Renault and the rest to GM. Chrysler parts out the company and THEN declares Chapter 11. But no matter how this plays out, foot soldiers will be sacrificed, the American auto industry will remain bound and gagged and the generals will get off Scott free.

Let’s start with what we know. Cerberus never intended to run Chrysler as an automaker. As Ken Elias pointed-out in his GM Death Watch, right from the git-go, the automaker’s most recent owners have starved Chrysler of all the investment necessary to run Chrysler as a going concern. In that sense, they lied to union workers, white collar employees, suppliers, dealers and customers. And the media bought their lies like a teenager purchasing a pack of condom with a knowing cock tease by his side. Hey baby, are you into EVs?

Now that Cerberus has been unmasked by the rest of the media (TTAC called the finance company’s play a strip and flip even before the sale was complete), we also know that Cerberus wants the Hell out of Chrysler, and soon. When Chrysler CEO Bob Nardelli famously pronounced that his employer was “operationally bankrupt,” he wasn’t kidding. The automaker’s truck business is dead, their car business is deader and the finance part of the program is the deaderer (apologies to Andrew). There is no there, there; and the red ink won’t stop spurting until Chrysler bleeds out.

So, assuming Cerberus hates carmaking and wants out now, what to do, what to do? There are three likely scenarios.

First, sell it to a sucker. I break with Mr. Elias’ view that GM will “absorb” Chrysler to ensure a prime position at the federal bailout trough. As PCH101 points out, GM is already too big to fail. In terms of public perception, the idea that GM is “healthy enough” to buy Chrysler (a dumbing-down of the concept, but there you go) would undermine its claims against the public purse. So who else? Renault? No. A Chinese automaker? Nope. In this market, no one. So fuhgeddaboutit.

Second option: Cerberus toughs it out. It keeps Chrysler until the industry shakes out and picks-up, and then sells it to whoever is left for whatever it can get. At this point, Chrysler would need federal “assistance” to stay in the game. The fact that ChryCo offered the media some cod-electric vehicles– pitching for part of the existing $25b federal loan program– shows that the company is ready, able and willing to steal borrow money from Uncle Sam.

I also disagree with Ken’s contention that the feds couldn’t loan bailout billions to Chrysler because it’s a private equity firm. If AIG execs can receive federal “intervention,” spend $1m on company pedicures and not be strung-up from a light pole, why should the fact that a guy who skis in Gstaad owns Chrysler make any difference to bailout boosters? As twisted as it sounds, a Chrysler bailout also sounds fair. If we give a loan to GM, why NOT Chrysler? Chrysler’s got history. “We made the feds a PROFIT the last time ‘round. And, lest we forget, Cerberus has plenty of good friends down in D.C.

If, however, Cerberus needs or wants a right now solution to their problems, bankruptcy is it. Or Chapter 7. Either way, option three is the fastest, cleanest and, possibly, cheapest option.

I know: I predicted a ChryCo C11 for late July. But unlike GM’s point-of-view, bankruptcy protection is ALWAYS on the table for Cerberus. Cerberus bought a controlling stake in Houston-based mortgage lender in 1998. Aegis ceased operations in August 2007. When Mervyn’s department-store chain (part-owned by Cerberus) hit the skids this summer, Cerberus pulled the plug and filed for C11. This very day, Mervyn’s filed for Chapter 7.

So which option is Cerberus pursuing? I reckon it’s all three at the same time. The big news here: Reuters reports that Cerberus is negotiating with Daimler to buy back the German automaker’s share of the American company. ALL of these exit strategies depend on Cerberus owning 100 percent of Chrysler.

No matter how you look at it, Chrysler is attempting to kill itself. Of course, there are some big winners in all this: JPMorgan and Citigroup (representing Cerberus) and Morgan Stanley and Evercore Partners (representing GM). The fees involved in keeping Cerberus’ options open must be astro-friggin’-nomical (and the meter’s already running). Another winner: the transplants. Chrysler’s slow bleed lets them gradually increase their share of the American without anyone noticing. How sad is that?

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  • George B George B on Oct 18, 2008

    Maybe GM/Chrysler can borrow the B-Ark idea from "The Hitchhiker's Guide to the Galaxy" and create a spinoff company full of all the brands they want to kill and people they want to fire. The spinoff company goes bankrupt and GM gets out from under the too many brands and too many present and former employees problem. http://en.wikipedia.org/wiki/Places_in_The_Hitchhiker%27s_Guide_to_the_Galaxy#Golgafrincham "Golgafrincham is a red semi-desert planet that is home of the Great Circling Poets of Arium and a species of particularly inspiring lichen. Its people decided it was time to rid themselves of an entire useless third of their population, and so the descendants of the Circling Poets concocted a story that their planet would shortly be destroyed in a great catastrophe. (It was apparently under threat from a "mutant star goat"). The useless third of the population (consisting of hairdressers, tired TV producers*, insurance salesmen, personnel officers, security guards, management consultants, telephone sanitizers and the like) were packed into the B-Ark, one of three giant Ark spaceships, and told that everyone else would follow shortly in the other two. The other two thirds of the population, of course, did not follow and "led full, rich and happy lives until they were all suddenly wiped out by a virulent disease contracted from a dirty telephone". The B-Ark was programmed to crash-land on a suitably remote planet on one of the outer spiral arms of the galaxy, which happened to be Earth, and the Golgafrinchan rejects gradually mingled with and usurped the native cavemen**, becoming the ancestors of humanity and thereby altering the course of the great experiment to find the question for the Answer to Life, the Universe, and Everything, or so Ford Prefect presumes. A lot of them didn't make it through the winter three years prior to Arthur Dent's reunion with Ford Prefect, and the few who remained in the spring said they needed a holiday and set out on a raft. History says they must have survived."

  • Menno Menno on Oct 19, 2008

    Yes, of course, George. I can see where this goes. GM shoves the useless people and divisions off onto Chrysler corporate shell (now known as "American Motor Cars LLC") after the "absorbtion" then cuts it loose a la Delphi, and "American Motors LLC" survives and GMChrysler takes a dirt nap.... I would laugh my @ss off.... AMC would be the low priced, economy cars (think Subaru crossed with pre-suv Kia), Saturn would be the slightly upscale euro-line, Hummer would be the sport utility vehicles which come back strong as AMC re-discovers 1970s hydraulic hybrid tech and diesel engines and Buick would be the luxury barges from low-cost China.