Cerberus Tries To Dump Chrysler - Will GM Cement Its Own Bankruptcy?
First off, it appears events over the past few weeks have possibly circumvented these talks. But, I'm going to comment regardless because the pickle is getting bigger rather than going away.
We have written often of the mess Cerberus Chrysler is in. The private equity firm Cerberus top ticked the economic cycle, the auto cycle and the credit cycle when it acquired Chrysler from Daimler. Now, they are in a mess and apparently ready to throw in the towel. That is, if the market will let them.
The auto business is unlike any other as we have discussed. The fixed costs and financial burdens are massive. Cerberus most assuredly had no idea what it was getting in to when it bought Chrysler. Hubris. GM and Ford will survive this crisis regardless of whether there is an ultimate bankruptcy. Chrysler has many headwinds we have talked about. The most immediate is the worst product mix of any major auto maker. Without some type of potential intervention, they may not be so lucky. That said, I hope Cerberus is successful at keeping the company afloat.
The framework of some type of merger is hazy because the talks are obviously private. But, the Detroit News, as usual tells us Cerberus is proposing a swap - the rest of GMAC in exchange for Chrysler. As a reminder, Cerberus also bought half of GMAC from GM. And, that acquisition has also done so well. GMAC has closed all of their retail mortgage offices as it continues to swim in an ocean of losses. (In 2005 GMAC had 250 0ffices). Why not take the rest? I don't know the financial position of Cerberus but ultimately these investments in cash heavy businesses have the potential to be extremely harmful without a return to economic growth.
Let me re-center the real proposal. The proposal is more likely centered around whether GM cements its own bankruptcy. GM is not in a position to be taking on a cash draining operation and attempting to integrate a very weak product line that has tremendous overlap into it's operations. GM gains nothing by buying Chrysler. No technology, no complementary product mix, nothing. The costs are potentially life threatening. Mergers of substantially similar equals almost never provides the yield promised. And, that is a gracious statement. At a time when GM should be maniacally focused on improving its operations and saving the company, the last thing it needs to be doing is spending years integrating a different culture and different company into its own.
The only question left is if GM is foolish enough to bite. Even though GM has lost market share for forty years, there has been an unwavering arrogance within its culture. Will that arrogance prevail? Or will prudence and focus on turning around the company? This will be a barometer of the mindset of GM management.
We have written often of the mess Cerberus Chrysler is in. The private equity firm Cerberus top ticked the economic cycle, the auto cycle and the credit cycle when it acquired Chrysler from Daimler. Now, they are in a mess and apparently ready to throw in the towel. That is, if the market will let them.
The auto business is unlike any other as we have discussed. The fixed costs and financial burdens are massive. Cerberus most assuredly had no idea what it was getting in to when it bought Chrysler. Hubris. GM and Ford will survive this crisis regardless of whether there is an ultimate bankruptcy. Chrysler has many headwinds we have talked about. The most immediate is the worst product mix of any major auto maker. Without some type of potential intervention, they may not be so lucky. That said, I hope Cerberus is successful at keeping the company afloat.
The framework of some type of merger is hazy because the talks are obviously private. But, the Detroit News, as usual tells us Cerberus is proposing a swap - the rest of GMAC in exchange for Chrysler. As a reminder, Cerberus also bought half of GMAC from GM. And, that acquisition has also done so well. GMAC has closed all of their retail mortgage offices as it continues to swim in an ocean of losses. (In 2005 GMAC had 250 0ffices). Why not take the rest? I don't know the financial position of Cerberus but ultimately these investments in cash heavy businesses have the potential to be extremely harmful without a return to economic growth.
Let me re-center the real proposal. The proposal is more likely centered around whether GM cements its own bankruptcy. GM is not in a position to be taking on a cash draining operation and attempting to integrate a very weak product line that has tremendous overlap into it's operations. GM gains nothing by buying Chrysler. No technology, no complementary product mix, nothing. The costs are potentially life threatening. Mergers of substantially similar equals almost never provides the yield promised. And, that is a gracious statement. At a time when GM should be maniacally focused on improving its operations and saving the company, the last thing it needs to be doing is spending years integrating a different culture and different company into its own.
The only question left is if GM is foolish enough to bite. Even though GM has lost market share for forty years, there has been an unwavering arrogance within its culture. Will that arrogance prevail? Or will prudence and focus on turning around the company? This will be a barometer of the mindset of GM management.
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