Thursday, May 7, 2009
Final, Probably, Post On Chrysler
Now that Chrysler is safely in the hands of the workers (GM creditors, did you see that?) and the rule of law cancelled till further notice, I think it is time to move on and hope that Ronnie Gettelfinger has a vision for its glorious future. But I should note some details that stick out in my mind.
Let's start with Chrysler's soon-to-depart CEO, Mr. Nardelli. As you might recall, he was in the running to replace Jack Welch at GE, along with Immelt and McNerney. The cherubic Immelt won, so McNerney went on to run 3M and now Boeing. Nardelli rolled down to Atlanta to run, and almost ruin, Home Depot. For the duration of his tenure, HD's return was negative vs. LOW, which returned over 200%. I'd classify this as EPIC FAIL but HD's board did not think so, and Nardelli walked with a $200 mm package: a great example of value transference. I do not blame him: it was the board's fault for hiring him, for letting him ruin the company and for agreeing to such a comp deal. There is plenty written about Nardelli's management style and failures at HD. I am sure GE, 3M and Boeing are feeling lucky.
Then he lands at Chrysler after the Cerberus buyout. See, there was a time when buyouts happened only with companies that had a good visibility on EBITDA and required little cap ex. But in the era of easy money and "everyone is doing it," many shops strayed away from that: there were simply no good deals left at one point. Part to pocket fees, and part not to look lame in front of the L.P.'s, the funds started doing dumber deals. Chrysler- the automotive operation- already ended up as one of the dumber deals. Nardelli proceeds to run this place into the ground as well, this time no comp figures are available.
What bothers me about this guy is this: after the first (of the recent) Chrysler bailouts, he takes out full-page advertisements in major papers to say "Thank You America for Investing in Chrysler". One, I never wanted to invest in your [adjective] company so please do not rub it in, and, two, could you not find a better use for the bailout money than to take full-page ads rubbing it in? Just another show of poor discretion from the former marine.
The final twist of the knife (final as of now) came today, when it became clear that the US taxpayer will NOT recover ANY of the $8 bn given to this trainwreck thus far. This "investment" was a gift from the taxpayer to the constituents in the Chrysler bankcrupcy case. Thanks, guys. And our elected representatives... cheer on. Oh, yeah, and we will support your gas-guzzling product line by keeping gasoline taxes as low as possible.
Back to Cerberus. A case of why one should be careful with the written word: in January 2008, in his letter, the "secretive"- back then- Stephen Feinberg wrote "We believe we bought (Chrysler) very cheaply, and we do not need to be heroes to earn a good return on the investment." Fast forward to May 2009, and thanks for playing. It should be noted that Cerberus is not quite done yet, so there might be some recovery. I think they still have Chrysler Financial, which I am sure has taxpayer backing. They also separately own the Chrysler HQ and collect rent from there, so what appears to be a total loss may end up being not so bad in a few years. Cerberus are not stupid, as also seen with the United Rentals situation, if you remember that one.
To summarize, there is no reason why Chrysler should exist. It is a sub-scale manufacturer with a sub-par vehicle line-up with a sub-par geographic foot print. If it were not for the taxpayers, the company would have been gone in 1980, and the US would have been a better place. The US still has a competitive successful autoindustry, it just does not happen to be in Michigan and it does not happen to be unionized. Think swing states vs. non-swing states. No one rushed to save the shoe factories in Maine or the furniture factories in SC. The taxpayers, and the future taxpayers, are feeding the dinsaurs when we should be feeding the mammals. The mammals, by the way, will likely come from abroad as the US descends into a banana republic mode (see my earlier posts).
P.S. Sunday, May 10th. Now Chrysler is apparently walking away from Lemon Laws. Ah, tha gratitude. Thanks to the same site for the pic above.
Posted by Barbarian Capital at 03:31