Chrysler's Hidden Coffers

[VenSeattle]

Chrysler's Hidden Coffers

Dan Gerstein, 12.10.08, 12:01 AM EST

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Why is Cerberus, one of the world's richest private equity firms, begging for a bailout?

When I wrote about the bailout blunders of the auto industry two weeks ago, I thought the Big Three had most likely topped out on the political outrage meter. But that was before the shady story of Cerberus, the uber-connected private equity firm that owns Chrysler, reared its three ugly heads over the weekend.

Buried on the business page of The New York Times Saturday were the details of Detroit's biggest snow job yet--literally as well as figuratively. Turns out that Cerberus CEO John Snow, who spent three-and-a-half lackluster, and some might say lap-doggish, years as President Bush's second Treasury secretary, is leading a who's who of crony capitalists in a lobbying campaign for a taxpayer bailout to "salvage Cerberus' investment in Chrysler."

That's right. Not to save the jobs of Chrysler employees or America's disappearing manufacturing base, mind you, but to prevent "one of the world's richest and most secretive private investment companies" from having to take a relatively modest financial hit and use some of its own capital to prop up the smallest of the major automakers.

Of course, Cerberus is sparing no expense to spare their investors any exposure. Together with Chrysler, it has spent $7 million to hire such high-rent lobbyists as Dan Quayle (who runs one of Cerberus' international units), former Sen. John Breaux (D-La.) and former Bush legislative liaison David Hobbs. Their goal: $7 billion from the auto industry bailout package Congress is working on now and another $8.5 billion in loans from the Energy Department that have already been authorized.

The more I dug into this private duplicity, the more nostalgic I got for the PR stupidity of the Big Three CEOs and their corporate jets. It smells that bad of boondoggle. And even worse, somehow this stink has largely escaped the detection and scrutiny of the bipartisan leadership of Congress. Indeed, both sides seem ready to compound their complicity in the lousy deals that Henry Paulson cut in the Wall Street bailout by handing over billions more to Chrysler without forcing the Snow men at Cerberus to show why they need it.

At a bare minimum, there is something deeply unseemly and unsettling about one influence-peddling ex-Treasury secretary using his special access to personally lobby his even more bank-beholden successor for favors. If I were running the House or Senate banking committees, I would be asking some tough questions about this conflict of interest cornucopia before giving Chrysler a dime--starting with what kind of financial connections Paulson's old firm, Goldman Sachs (nyse: GS - news - people ), has to Cerberus.

But that's the least of it. I am not a finance expert, but what makes this episode so outrageous is that even a casual observer can see what a taxpayer ripoff Cerberus appears to be getting away with--but Congress and the Bush administration somehow cannot or will not. Why are they unable tell the obvious difference between General Motors (nyse: GM - news - people ) and Chrysler? GM is broke, can't get a loan and is actually facing an emergency. Via Cerberus, on the other hand, Chrysler has access to loads of capital, and the only thing collapsing is its credibility.

[FUTURE_OF_GM]

First the analysts, now the media...

The "phase out" seems to be going according to plan.

[regfootball]

it's really unfortunate that chrysler has changed hands like it has. the 99 300 and may products since, very worthy.

cab forward.

neon, pt.

the toxic landscape we live in these days that only reinforces how well we read consumer reports and CNN......it's a shame that cerebus is stewardship of Chrysler.

As much as i like Ford and GM i also do not think chrysler should fail. if we could just cut toyota out of the equation......

[CARBIZ]

I, too, was wondering about this Cerberus thing. I was under the impression that they had more money than God - so why would they need to bail out Chrysler? In fact, with their assets, why couldn't they prop up Chrysler and GM? (Not that I am advocating that to happen. With the stupidity of buying Chrysler from Daimler at at time when Detroit was in decline seemed like folly to even the likes of me!)

A tiny, cynical part of me is wondering how much of this bankruptcy talk is posturing and how much of it is reality. After all, if the UAW gives in to more concessions and a few hundred dealers go under, won't that be better for Detroit in the long run?

[regfootball]

a certain buickman is probably saying that is what the deal is, at least to getting rid of dealers.

[Z-06]

I, too, was wondering about this Cerberus thing. I was under the impression that they had more money than God - so why would they need to bail out Chrysler? In fact, with their assets, why couldn't they prop up Chrysler and GM? (Not that I am advocating that to happen. With the stupidity of buying Chrysler from Daimler at at time when Detroit was in decline seemed like folly to even the likes of me!)

A tiny, cynical part of me is wondering how much of this bankruptcy talk is posturing and how much of it is reality. After all, if the UAW gives in to more concessions and a few hundred dealers go under, won't that be better for Detroit in the long run?

Do you as a dealer think that the number of dealerships that GM has are in exceess to what they actually need? If yes, what would be the best way to attack such scenario. If no, what makes you believe that way?

[CARBIZ]

In the Greater Toronto Area, GM still has about 36 dealers to Toyota's 22. Guess what: Toyota is moving more metal than we are these days. In fact, Toyota stores are selling more in a weekend than ANY GM dealer in this city moves in a month.

You do the math. We could drop to 15 dealers to serve this city of 5 million and it would be fine. However, the unfortunate problem is that where the dealers are closing is a problem. For example, Honda, Toyota, Chrysler (?) all have dealers in the downtown area of this city (which is growing, believe it or not - 50 story condos are popping up everywhere!). GM does not. IN fact, there are no GM dealers in the entire 'center' of this city any more. Consequenty, in my neighborhood (downtown) roughtly 80% of the vehicles I see parked over night are imports. Jeep seems to do well downtown, though - go figure.

I can't speak for the U.S. From the figures I've seen, 150+ units per month is normal in the States. No domestic dealer in Canada has seen those kind of figures in 5,10 years. The dealer I used to be at (50+ years in business) would normally sell 400 cars a month in the '80s and early '90s; by the turn of the Century it was down to 80+. When it closed: 45 a month.

Franchise laws are a funny thing, but if a dealer becomes 'insolvent' or if it can't afford to carry sufficient product for GM's business-case, then the dealer can be closed down. However, with the way things are going with GMAC (Bill Gates wouldn't get bought these days), a big chunk of the dealers will go down on that point alone. It's bad enough people are scared to buy GM, but if we can't get the banks to buy the paper, we may as well close our doors.

If I had to guess, probably 50% of the dealers need to go, but that would have to be done on a city by city basis. One of GM's strengths has always been that it has (had?) more dealers than everyone else combined. This is what hampers newcomers like Mitsubishi: no presence. This could also play into Japan Inc's plans, too. As GM/Ford dealers give up prime locations, the imports fill the void.

It really is the boy with his fingers in the dike syndrome.

[A Horse With No Name]

Your right about the location thing. Here in Columbus, most of the domestics have dealerships in rural areas or urban, working class/poor neighborhoods, while the suburbs are dominated by (mostly Japanese) import stores.

Hadn't thought of that before, but it makes a lot of sense.

Chris