With its parent company rolling in cash, why are we bailing out Chrysler?

December 11, 2008

Washington (ChattahBox) — While congress struggles on how to bail-out the big 3 auto companies, we should get some of the terminology straight.  We are essentially bailing out GM, Ford and Cerberus.  What about Chrysler you say? While GM and the Ford Motor Company are public corporations, Chrysler is controlled by Cerberus. Last year Cerberus and about 100 co-investors bought an 80% stake in Chrysler and its financing arm at a fire sale price of $7.4 billion. (Cerberus’ own stake was $2 billion.)

Cerberus investments in Chrysler are estimated to be just 7% of its assets under management. Cerberus has barely tapped any of its massive holdings to stabilize Chrysler’s precarious finances; the exception was a $2 billion loan in July. Instead, the company has shed 30,000 jobs, a specialty of cost-cutting corporate flip artists like Cerberus. The main reason for that slimming down was to cut expenses while courting GM for a merger. They almost had a deal a few weeks ago, but GM backed out and is apparently refusing any marriage proposals for the foreseeable future.

Now Cerberus is looking for the taxpayers to buy them time. And to add insult to fiduciary injury, the company has not allegedly offered to put any of its money at risk to match the government relief dollars and show good faith to the taxpayers. The best they could do, according to the Times, was to pledge to forgo any fees that it might have collected on its investments if it receives a government loan.

At least some members of Congress might see through this high-sheened con game. At hearings on Capitol Hill last week, a few backbenchers–led by Sen. Bob Corker (R-Tenn.) and Rep. Ginny Waite-Brown (R-Fla.)–aggressively challenged Chrysler CEO Bob Nardelli to explain why Cerberus won’t use any of its cash to keep Chrysler afloat. Nardelli vaguely answered that “fiduciary responsibilities” to other investors precluded such a cash infusion.

Turns out according to Dan Gerstein at Forbes, that Cerberus CEO John Snow, who spent three-and-a-half 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.” 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.

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. Why is this bailout a dire emergency and why Cerberus cannot use any of its other assets to stop Chrysler from running out of cash has not been investigated by our quick to act before they understand Congress. And what happens to our tax dollars if Chrysler and GM end up merging after the bailout?


2 Responses to “With its parent company rolling in cash, why are we bailing out Chrysler?”

  1. Zack on December 11th, 2008 4:56 pm

    This past year the exorbitant cost of fuel nearly destroyed our economy and seriously damaged our society. That one single factor alone affected every single facet of our economy and society. Filling up at the pump broke most family budgets alone. Added to that was the financial burden of sharp increases in every consumer product because the increased cost of fuel was passed on through the production and shipping of such products. Utility companies sought and were granted record price hikes further straining the family budget. WE cut back, cut out frills, for some that was not going out to eat any longer, cutting off the home phone and only using the cell. Shutting the cable off, or maybe going longer to replace things that really need replaced like the family car, tires, clothing etc. Sadly some have had to go so far as to cut out necessary medications just to keep a roof over their heads. Day after day sad stories are on the news about animal shelters bursting at the seams as families either lost their homes or can no longer feed their pets. Cutting back further reduces consumer spending which results in even more jobs lost. While we are so busy doing the happy dance at the pumps at the lower gas prices OPEC is planning to cut production until the reach their desired 75-100. per barrel price. My electric bill went up 16% during the height of this, now they are talking about reducing it 4% since fuel is back down. What happened to the other 12%? Groceries have not come back down and most are in smaller packaging so we are paying more for less. Freddie and Fannie have taken most all the blame for our society’s economy. Of all the homes I have seen lost in FL and I have seen many and many more in the process none have been due to an adjustable mortgage like the media likes to portray, they have been due to lack of employment. Those who do still have a job have seen tremendous cutbacks in hours available which cuts their check, some in half. WE need to use some of these stimulus/bailout dollars to make America Energy Dependent. It would cost the equivalent of 60 cents a gallon to charge and drive an electric car. The electricity to charge the car could conceivably be generated by solar or wind. If all gasoline cars, trucks, and suv’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.What a win -win situation it would be for our nation to create clean, cheap electricity, create millions of badly needed new green collar jobs and at the same time we could reduce and eventually eliminate our dependence on foreign oil. I just read a fascinating and profound book by Jeff Wilson called The Manhattan Project of 2009 Energy Independence Now. http://www.themanhattanprojectof2009.com The plan outlined in his book would save this country from financial ruin as well as get us out from under our dependence on foreign oil. I encourage all to read this book, especially our politicians. Also I encourage all of you to visit Better Place @ http://www.betterplace.com/ to see the work this new company is doing to make our country energy independent. There is a tab on the upper right hand side of the page to click to sign up for news letters and sign an online petition. Very worthwhile. We have to do our part as citizens to educate ourselves and be more proactive.

  2. James Raider on December 13th, 2008 1:25 am

    CERBERUS Is Leveraging Billion Dollar Connections In Congress

    For Chrysler, if the bailout was Structured effectively, the Cerberus share position would be rendered irrelevent.


    The Deal Structure is always, always the key.

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