Cerberus would love to wash its hands of Chrysler, and never again have to think about why it decided to jump headlong into the morass known as the domestic auto industry at the peak of the private equity boom. The New York Times notes that unlike GM (GM), Chrysler has yet to give any indication for its plans to restructure itself — it probably has no clue, though in the meantime the whole company is taking a month-long extra vacation to help burn through some inventory. One possibility: just hand over the keys to the union and other creditors:
After President Bush announced loans for both companies on Friday, Chrysler’s parent, the private equity firm Cerberus Capital Management, said in a statement that it hoped to “facilitate the restructuring and the recapitalization of Chrysler.”
But in the same statement, Cerberus raised questions about whether it would remain an investor if Chrysler survives.
“Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labour and creditors as currency to facilitate the accommodations necessary to effect the restructuring,” Cerberus said.
In other words, Cerberus appears willing to give up its 80.1 per cent stake in Chrysler to the United Automobile Workers and anyone else the troubled automaker owes money to.
Given that Chrysler equity is worth exactly zero — seriously, that’s what Daimler values its 19.9% stake at — Cerberus isn’t being generous in its offer to contribute equity, nor is it clear what concessions the various stakeholders would want to make in exchange for that equity. The bottom line here is that despite the $4 billion its getting from the government, it still is headed straight towards bankruptcy. Unlike GM, which believes it can restructure and turn things around, Chrysler didn’t even opt for typical corporate puffery.
That being said, handing Chrysler over to the UAW is an interesting idea. RIght now the carmakers have two major stakeholders — the UAW and the bondholders — and one teensy weensy stakeholder, the shareholders stuck in the middle. It seems pretty inefficient for the current crop of shareholders to be leading everything, when their stake is now so economically inconsequential. Better to just let the UAW negotiate whatever wages it wants with itself while negotiating directly with creditors. Perhaps the union will see how things look with the shoe on the other foot.
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