Posted on 10/28/2008 12:53:12 AM PDT by The Watcher
This is going to be a bit long, but please be patient. I'm going to be as concise and clear as I can, and this is a choice. Rather than spend a lot of time attempting to provide a large body of links to back up my facts, I'm just going to cite what's in the news, and what I know from reading extensively the last week.
First, the facts:
General Motors has stated it has something less than 25 billion in cash and credit lines, and it is using it up at MORE than 1 billion dollars a month. As GM's sales fall, there appears to be no end to the bleeding in sight. GM does not appear to have the cash to restructure the company, nor has it any viable plan to reduce costs or generate money. It has sold real estate and so on, but these are trickles in the tidal wave of losses. When they reach something less than 10 billion in cash in the bank, GM will not be able to operate. It will be unable to pay its bills, employees on time while waiting for incoming cash.
Summary: General Motors has about a year before it declares bankruptcy or finds an injection of cash it can use for daily operations. GM has no published strategy for quickly turning this situation around.
Chrysler: Chrysler was "purchased" from Daimler not long ago by Cerebus Capital. Just 10 years ago, Chrysler "merged" with Daimler. At the time, Chrysler was the most efficient automaker in the world. It had no debt and 13 billion dollars in cash sitting in the bank, and was making money at record setting margins on their vehicles.
Between the "merger" and the sale to Cerberus, Daimler immediately displaced all the top US management, and replaced them with Daimler people. They then cancelled most of Chrysler's new products, and ALL the small cars planned.
Daimler then transferred most of thier automotive engineering work to Chrysler, here in the US, and then began ordering integration of Daimler subassemblies into Chrysler products, to increase the production quantity (and reduce per unit price) of various overpriced and generally less than the best subassemblies or components.
Daimler raided Chrysler's cash, and spent it all, and all of Chrysler's profits for several years, and then eventually managed to kill sales in the US so badly, that Daimler could no longer afford to keep it going.
After the separation of Chrysler and Daimler, Chrysler has struggled mightily with new management and has made great strides at attempting to fix the long term mistakes in product development.
Currently, Chrysler is losing about 200 million dollars per month, estimated to work out to about 2 to 3 billion dollars loss per year. Chrysler says it has about 10 billion dollars in cash and credit lines, and has inked deals to build trucks for Nissan, has great sales growth internationally, and has actually introduced both current hybrid and future electric vehicles, which will be for sale as 2010 models - AHEAD of all the other car makers.
So, you ask, where's the swindle?
Well, have you heard about GM and Chrysler merging?
What's going on? Well, Cerebus wants full ownership of GMAC. Why? They want to sell GMAC's morgage holdings to the treasury for a massive amount of cash.
And how do they intend to get full control of GMAC's stock and ownership? By getting GM to give it to them.
Cerebus has ordered GMAC to stop financing most customers for GM's automobiles. This has caused serious sales losses for GM dealers. This is blackmail to get the rest of GMAC. And what do they want to give to get the rest of ownership of GMAC? Chrysler.
Though struggling, and laying off people, Chrysler in and of itself does not appear to be in danger of failing anytime soon, and has promising new products in the pipeline, and deals in place to busy some of the idle production lines they currently own. Get that? Putting people to work!
But what happens if GM and Chrysler merge? Well, ALL Chrysler production will be excess capacity for GM, who is drowning in it. A huge array of excess dealerships and distribution systems. Chrysler's pension obligations, which are another 3 billion or so. In other words, GM and Chrysler merging will result in little more than layoffs and cost GM large amounts of cash trying to restructure the two companies into one.
And tens of thousands of layoffs.
And it changes absolutely NOTHING that's wrong with GM now. It simply adds more work, a complex integration of brands, systems, and conflicting product lines and the work of unduplicating.
GM's board is reportedly not just not interested, it is apparently somewhat hostile to the merger proposal. Yet, with Cerebus blackmailing GM by being able to all but shut off sales by controlling GMAC, they may have no choice in the matter, but to go along.
Today, GM and Cerebus have asked the US Treasury and the Administration to fund 10 billion dollars in costs to fund the merger.
And, supposedly have offered "minimal layoffs" to get political support for the deal. In other words, to forego ANY benefits that may come from economies of scale.
So, what is this all about? Cerebus has GM over a barrel by controlling customer financing. Cerebus wants GMAC and doesn't want to shell out money for it. Cerebus wants GMAC so it can get its hands on a lot of billions of public dollars.
And it wants the government to FUND the takeover so it can have GMAC mortgages to sell to the government.
Industry analysts almost universally warn there is NOTHING to be gained by either Chrysler or GM by the merger. Those focusing on GM are generally convinced that the distraction and time and the obligations incurred will actuall weaken GM further, almost gauranteeing financial collapse.
From the Chrysler point of view, it is presumed that the Chrysler brand will likely vanish almost immediately, and the production, design, engineering, sales, distribution, etc employees will all be out of work over a relatively short period of time.
Any announcement of merger or brand elimenation will doom any and all sales future for the Chrysler brands. Further, GM and Chrysler share many common part or component suppliers. The loss of Chrysler sales very likely will cause price inflation or closure of many of GM's vital parts suppliers.
The combination of these circumstances would have an immediate impact of probably 30 thousand layoffs, and ripple effect likely two to three times that.
Should the further weakened GM fail, the job losses would be likely more than twice the combined workforces for both companies, which is around 230,000 people. The ripple effect, which consists of the losses due to suppliers, dealers, distribution, and so on could easily exceed a million.
A million job losses would be a SERIOUS blow to our economy, and would transfer a MUCH larger segment of our car market to imports, worsening our trade deficit.
Now, ALL of this possible and very likely bad effects would happen... FOR ONE REASON. That Cerebus Capital could get bailout cash from the federal government.
GM and Cerebus want 10 billion just to pay for the merger operation. If Chrysler had half of that in cash, it could dramatically improve its product line and would remain a fully viable American car company.
GM's future is very murky. It isn't improved by the addition of Chrysler, more like damaged by it.
Chrysler's future is assuredly ended by the merger.
This one deal, forced by Cerebus JUST TO GET CASH FROM THE TREASURY, could be the straw to tip our country from recession to depression.
Time to contact your government and tell them to NOT fund a merger, as there's no benefit to anyone for it but Cerebus, and that benefit is just to transfer GMAC's liabilities to the taxpayer's back, for a huge profit.
Now here's the part that is even more infuriating... Cerebus has stated that it intends to conclude whatever is going to happen BY OR ON NOVEMBER 4. Why that date?
The election will occupy the media, and there will BE NO PUBLIC SCRUTINY OR REACTION TO INFLUENCE CONGRESS, THE ADMINISTRATION, OR lobby to stop this fraud against the government, taxpayers, the employees of both GM and Chrysler and the country in general.
Nice vanity.
Do you think they should be ‘bailed out’?
If your article makes a connection between Cerebus and GM, I missed it. So, how is it that Cerebus(whom I've never heard of) is able to dictate anything to GM?
vaudine
Cerebus owns 51% of GMAC. GMAC is the principle financier for GM’s auto sales. Cerebus has operating control, but not full ownership of GM’s financial arm.
GMAC has a large portfolio of both automotive and REAL ESTATE loans.
Could you condense “the Threat” down specificly
If history shows us anything, it is that Republic’s and Democracies fail when the public treasury is raided. And when that happens, the result is a dictatorship.
It’s coming, and coming a lot faster than I thought possible.
Do I think Chrysler should be bailed out? No. Chrysler does not need “bailing out”. If Cerebus, which is the investment company that owns Chrysler, LLC, would simply spin them off or take them public with the aid of some larger investors, Chrysler has a great future on its own. Not gauranteed, but right now, none of the US automakers is assured of surviving our economic times.
It’s just that Chrysler and GM merger HAS NO GOOD ASPECTS, and the only purpose is for Cerebus to get a pile of public money.
You post the thread. You talk this shit?
I already did, in the posting. The threat is that this forced merger by Cerebus will destroy both Chrysler and GM, and the employment and tax consequences of those two failures will be so enormous it could be the difference between recession and depression.
Again, the only PURPOSE of this merger, is for Cerebus to gain control of GMAC and sell it’s weak securities to the government for a huge pile of cash. They appear willing to take down both GM and Chrysler to get ahold of it. And they want YOU to fund the process.
BTW, Google recommended a search search for Ceberus which brings me to the company you're discussing. Question: Why can Ceberus not act independently of GM if they have controlling interest of GMAC?
The name is kind of appropriate.
Forbes: Named after the mythical three-headed dog that guards the gates of hell, Cerberus Capital Management has become a driving force among private equity firms. One of its more recent moves is the purchase of 80% of Chrysler from Daimler in 2007. Cerberus was also the lead investor of a group that acquired 51% of GMAC, the financing arm of General Motors. The company also owns bus manufacturer Blue Bird and car parts maker TA Delaware (formerly Tower Automotive). Other holdings include a 45%-stake in Japanese bank Aozora, real estate services firm LNR Property, and a 52%-stake in ACE Aviation Holdings, the parent company of Air Canada.
Sometimes I feel like Teddy Roosevelt...it’s weird when someone with libertarian roots feels that way.
You’re not understanding... Cerebus IS ACTING INDEPENDENTLY OF GM. Cerebus owns 51% of GMAC. If GMAC sells 5, 10, 100, or however many billion in securities to the treasury, the cash will not go to Cerebus alone, but will be shared with GM.
Cerebus wants full control AND full ownership so it can keep everything, but is not willing to offer GM cash for the rest of GMAC. HOwever, GM is still dependent upon GMAC to finance it’s auto sales, and Cerebus can order GMAC to simply stop financing for GM and all but kill the company due to severe sales loss.
Basically, Cerebus has managed to find a way to blackmail GM into almost anything Cerebus wants, by controlling the financing of GM auto sales.
It won’t happen.
You’re right about the spelling. But what I want to call them I can’t say or post in public.
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