Is Cerberus Going To Call It Quits?

There's speculation over on Clusterstock that PE giant Cerberus might just throw in the towel and give Chrysler away.

Clusterstock: Could Cerberus Just Hand Chrysler's Keys To The UAW?

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.

I'm sure that buying Chrysler seemed like a good idea at the time. One commenter on Clusterstock asks what their original plan was. Really, what modelling did they do that led them to believe that they could get into the US Auto industry and make out like bandits?

It probably looked something like this:

1) Acquire Chrysler

2) ????

3) PROFIT!

Ooops!

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Cerberus Cries Boo Hoo

Yahoo: Cerberus claims it was misled in deal for Chrysler

Cerberus accuses Daimler of misrepresentations before deal to buy Chrysler closed last year
DETROIT (AP) -- Relations between Chrysler's current and former owners turned ugly Wednesday when private equity firm Cerberus Capital Management LP accused Daimler AG of "intentionally and materially" misleading Cerberus before the German automaker sold Chrysler last year.

Pretty goddamn funny for a bunch of guys who think they're the smartest ones in the room to now claim that they were hoodwinked.

More likely: they learned that not only aren't they as smart as they thought, but also that Six Sigma can't fix everything.

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GM Negotiating For Chrysler. Wait, What!?

So the WSJ and NYT reports, and pointed out by Calculated Risk.

Calculated Risk: GM to Acquire Chrysler?

The WSJ reports that GM has recently talked with Cerberus about acquiring Chrysler's automotive operations in exchange for GM's remaining 49% stake in GMAC.
Cerberus would keep Chrysler's financing arm - and probably would combine it with GMAC.

As I'm fond of saying about airline mergers: great, after they merge they can plunge into bankruptcy together. Now there's a synergy for you!

I suppose we ought not to be surprised that it didn't take Cerberus long to decide that the carmaking business wasn't what they hoped for, and to seek an exit back to straight finance, which I expect they have a clearer understanding of.

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Nardelli a poor choice to head Chrysler, says Thomas Watson

Canadian Business Magazine's Thomas Watson comes right out and says what I was hinting at obliquely about a week ago: that Nardelli isn't the best qualified person for the job.

Canadian Business: The wrong driver at Chrysler

Simply put, the new CEO of Chrysler rubs the UAW, like
the multi-million-dollar retention packages handed out by auto parts maker
Delphi Corp.'s board to keep executives who ran the company into the ground.
Hiring Nardelli was a bad move. It was also unneeded. After all, to save
Chrysler, you need someone that auto workers can grow to trust as a long-term
partner, not someone with nothing to lose — and especially not someone from
outside the industry who is really more interested in fixing a broken
reputation. The right guy for the job exists. In fact, he was running Chrysler
before Nardelli came along.

Watson's point about LaSorda being a better choice to drive long-term change is significant, but I think that he skirted what I believe is the main issue, that Cerberus was looking for a hatchet man, and a Judas Goat upon whose neck they could hang failure if things don't go well.

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Some people cheer Nardelli's role at Chrysler

That's right, you heard me. Not everybody thinks that the man who ran Home Depot onto the rocks is a poor choice to steer Chrysler between the Scylla of the UAW's bloodsucking demands and the Charybdis of horrific infrastructure costs.

Today's feature in Bloomberg is full of quotes from people who think that he will do a bang-up job:

Bloomberg: Nardelli, Cost-Cutter, Is `Perfect Fit' at Chrysler, Welch Says

Aug. 7 (Bloomberg) -- Robert Nardelli, who stumbled in the public eye at Home Depot Inc., may do better at Chrysler LLC as the now-private U.S. automaker focuses on trimming expenses and generating cash, not stock returns.
``This is an absolutely perfect fit,'' said Jack Welch, retired chief executive officer of General Electric Co., where Nardelli worked from 1971 to 2000. ``They've got to get cost, efficiency, service, all those things in line,'' Welch said. ``He's the best in the world at that.''

...

``Nardelli is an agent of prompt change,'' said Dan Poole, who helps manage $31 billion at National City Bank in Cleveland including shares in Home Depot and DaimlerChrysler. ``Frankly, a private company might be a better place for him because they want revenue and earnings, and that's what he delivers.''

...

Keith Davis, a Washington-based analyst with Farr Miller & Washington LLC who helps manage about $600 million, said Nardelli may fare better at Chrysler because the automaker is a manufacturing company like Fairfield, Connecticut-based GE.
`Taking Costs Out'
``He's shown he's great at taking costs out of the business,'' Davis said.

Okay, he's great at cutting costs. Woo Hah. But can he drive more consumers into driving Chryslers? Cutting spending is good, but no one ever made more money by spending less. You make more money by making more money.

Now that Chrysler is private, I don't expect Cerberus to be especially forthcoming about in the media about the progress of the turnaround. Without public shareholders, they don't have to. The UAW, on the other hand, would not appear to have the same self-interest in keeping their lips zipped, especially if they feel they aren't getting their way. I suspect that outside observers will end up with a more candid view of a private turnaround with Chrysler than with previous ventures.

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Lots of bile over Nardelli taking the reins at Chrysler

As you might expect, the appointment of ex-Home Depot front man Bob Nardellli as Chrysler's new CEO has generated reams of invective amongst all the Usual Suspects in the blogosphere.

It's not just his appointment to the top spot that's forcing members of the Commentariat to keep a spitoon next to their computer monitors, so that they can hawk the bad taste out of their mouths while they type, it's the way that the mainstream business media are going out of their way to laud Cerberus' decision, and write about Nardelli as if he was the second coming of Lee Iaccocca.

Some choice bits of bile:

Gary Weiss: The Media's Nardelli Puffery
Imperious, disgraced, grasping, serially incompetent CEOs apparently are in short supply. Bob Nardelli, who embodied those virtues as CEO of Home Depot, has now re-emerged at the helm of Chrysler. What is even more amazing as the media's ho-hum reaction to this absurdity.

The Street's Marek Fuchs foams at the mouth and chews his keyboard to splinters for three pages in his tirade entitled Reminder: Nardelli Blew It at Home Depot
But you ask, surely of all CEOs, the discredited Nardelli, who did about as bad a job as any modern CEO, would at least garner coverage that accurately put his disastrous tenure at Home Depot in complete perspective, right?
You didn't really ask that, did you?
In the bountiful bubble years that were the American real estate market between 2000 and 2006, every two-bit hustler peddling a mortgage or home improvement product made major dollars. Home Depot shareholders? Not one thin dime.

I have a different perspective.

Cerberus Capital knows that the turnaround at Chrysler is going to be costly and bloody. I think that Cerberus tapped him because a) he does have a marquee pedigree that the business media will eat up, as we have witnessed, b) he was the only CEO in their Rolodex who could start immediately, what with being unemployed and all, and c) he’s the expendable crewmember, and they have every intention of jettisoning him if things don’t work out. Of course, if things go poorly, it will be all his fault.

Seeing such cynicism on this blog probably comes as a shock to you faithful readers who usually expect my analyses to be composed of rainbows, candy canes, and puppy dogs, but there you have it.

Earlier: Nardelli tapped to renovate Chrysler's fortunes

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