What's Good for Cerberus Capital Managment Is Good for America

Disclosure first: I live in Southern California, and I'm almost certain they don't sell American cars here. The cops drive Crown Vics, but only to give the criminals a sporting chance to get away. Makes the freeway chases last longer. Good for ratings.

I guess I've rented American cars. I drove a Dodge Intrepid around Rhode Island one summer, and appreciated how much it handled like the aircraft carrier for which it was named. I drove an Oldsmobile Intrigue in Montreal a few years ago, and the most intriguing thing about it was the way it didn't start the second day and they had to tow it back to the airport.

The only actual autoworker I've ever met is the guy who wrote Rivethead, and he probably wasn't typical, at least I hope not.

I'm sure most autoworkers are the salt of the earth, though. Hard-working patriots from Bruce Springsteen songs, with only the occasional moments of existential doubt over unplanned pregnancies and brothers who ain't no good. Nothing that staring at a river wouldn't fix.

Only a tiny, tiny fraction of them are former death camp guards.

I'm all for good union jobs with health insurance and pensions. If you work hard you should be able to send your kids to school and eat, even when you're old. I thought that was the American Dream, before it got replaced with the right to stockpile ammo.

To sum up: Autoworkers are aces with me. And so are cars. Very useful for getting around.

That said, there are only two reasons to save an American car company: Nostalgia and nativism. And neither of those is a very good reason.

What do we even mean when we say, "the American auto industry?" Honda has been making cars -- like my Civic -- in Ohio since 1982.

Do we mean American capital? Because that's just silly. Capital flows freely. Or it used to.

So why is Honda on its own, while GM is our problem? Both have American workers and American customers. (Well, Honda has customers.) Is it because GM's founders were white, or because its management is native born? Do we owe the Ford family reparations for something I missed? Is this really how we operate?

I'm not saying nostalgia and nativism don't have their place. Lou Dobbs gives me the creeps, but lots of people like him. The worst thing about the automotive industry bailout is that it's insincere. It's preying on our nativist and nostalgic attachments to things that don't exist anymore.

There's no such thing as Chrysler. It doesn't even have any stockholders to save. If the bailout passes, your money will go directly to the hardworking men and women of something called Cerberus Capital Management, L.P.

Cerberus, named for reasons unknown after the mythical three-headed dog that drags souls to hell, is one of the world's largest private investment firms. By its own account, it has $25 billion under management in funds and accounts and significant investments in more than 50 companies that, in aggregate, generate more than $60 billion in annual revenues worldwide.

Including:

A Japanese bank called Aozora
A Japanese real estate company called Showa Jisho
A Japanese golf course company called Kokusai Kogyo
An Israeli bank called Bank Leumi
A German bank called Handel und Kredit Bankhaus
A reinsurance company called Scottish Re, with headquarters in Bermuda
A British TV rental chain called Boxclever
Telacris Biotherapeutics, which seems to make things out of blood plasma, or into blood plasma or something
A defense contractor called IAP World Wide
Bushmaster Firearms
Remington Arms
Panther Arms
Alamo Rental Car
250 Burger Kings
655 Albertson's
7 television stations
$30,000,000 worth of Mike Myers' "The Love Guru"
65,000 apartments in Berlin through GSW Berlin GmbH

Maybe you or your congressperson has a nostalgic attachment to some of those things. I don't.

Maybe Cerberus Capital Management L.P. should sell some of them, if they really need cash to stay in the minivan business.

Maybe they should stop using Chrysler to shake down the United States Treasury, like using a less-loved relative in a wheelchair to cut the line at Disneyland.

Read More:

Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In

Comments

[Viper]

Well lets see of the 300 million cars in the US more than Half are Detroit... So thats 160 million cars depending on parts. Maybe 20 million under warranty. kiss that good bye..

10-20 million jobs.. No Problem Kris!


Lets not give our automakers help, while the Japanese Carmakers get interest free loans and the government pays for their auto research and in japan they operate from a protected market where the same Toyota sells for twice as much as here... has Toyota ever yet shown a profit in the U.S. ? And of course Europe because of Japan dumping and selling at a loss restricts their market share starting back in the 1980s to under 20%. And of course neither Japan, nor Europe or China MFG pay for their employee health care which adds 2K to the cost of a US car which makes it hard for them to sell small cars here at a profit. In China the cars sold there have to be made there/ So much for free trade and free markets!

to be continued

[indy100]

So, is ANYTHING the fault of the American car makers, the American corporations or America as a whole?? Jeez, it's time that we stopped passing the buck and the blame and make some changes!!
Bankruptcy, reorganization, retooling and retrofitting, "green" QUALITY vehicles are the answer. I've owned American cars, as well as a Kia, a Nissan and currently a Toyota. All three were better by far than any of the "American" cars I've owned. And my Corolla was most likely made right here in the US.

[panderwatch]

Chris, excellent points all around. I myself owned an American car and liked it: it was a Saab. Made in Denmark but owned by GM. The folks at GM should be dialing IKEA right now and making their pitch instead of coming to D.C. for a handout.

[panderwatch]

Ooops. Apologies to the Danes (and Swedes). Saabs are made in Sweden. Birthplace of the 3-point shoulder seatbelt that Detroit tried to suppress for years as mandatory equip.

[Purobi]

I had 5 SAABs. Loved them all. Great cars but SAAB is 49% owned by GM. They tried to destroy SAAB, but could not quite manage to do so.

[paixa3]

I do not think that GM tried to destroy SAAB. The GM management style just destroys by nature. They, the management, NEED to be replaced with NO parachutes attached.

[BlueZoo]

This article is far too simplistic. I don't care what or who Cerberus owns but I care a great deal about the one in ten jobs that will be lost if the US auto industry goes under. We're talking hundreds of thousands of jobs here and, consequently, millions of people drastically affected. We can rail against the Big 3 auto makers but it's obvious the management there do not have the skills needed to run these companies effectively. IMO, we should give them the bridge loan but attach great caveats to that loan and one of the warnings needs to be that the management changes. We, the taxpayers, did make money from the Chrysler bailout. We can do so again but only if our Congress holds the Big 3 management to exacting and rigorous standards. If Congress can do this, we can save our auto industry.

[websmith]

There are another 200 billion reasons to save the American car companies. If the automakers are allowed to go out of business, 10 million more Americans will be out of work and the unemployment costs to the American taxpayer will exceed $200 billion per year.

Look around. 9,000 homes are going into foreclosure, hundreds of companies are closing, and thousands of jobs are being lost every single day. After these armchair automakers gave the banks $1 trillion to loan out, credit card limits are being reduced and no one can get a loan to buy anything, let alone a car. What is happening to the automakers now is not a result of their problems.

The car makers didn't bring this $14 trillion economy to its knees. The government and the banks did. Now they're doing their best to make it worse.

$25 billion is not enough. Would you rather loan automakers $100 billion that you will end up getting back, or would you like to lose an amount climbing from $200 billion?

http://ewebsmith.com/gov/autobailout.html

[panderwatch]

Websmith are you a Congressman/woman from MI? If not, you must be drinking the same Koolaid. Chapter 11 (not Chapter 7) means an immediate restructuring of companies (esp. GM) that have not been able to compete in a changing global market. There are many people within the industry who secretly want this to happen so they can shred the juicy union agreements and pensions they promised during the boom years.
People will still be buying American cars (look, even 25% still support Bush). Suppliers will re-tool for increased manuf among the Japanese and Europeans who want to make cars here. No one is folding up the tent and laying off 10 million people. Will there be pain? Yes. Is it managements' fault at these co's? Yes. Off with their heads I say. For some perspective rent the Coppola movie "Tucker."

[tamarabamara]

There is not one thing that is simple or good about the auto bailout. But I just have one word to respond to anybody who says it shouldn't happen: GRANDPARENTS. MY GRANDPARENTS. My grandfather came back from serving in world war II and promptly began his union career working on the lines of the Fisher body plant in Grand Rapids, Michigan. His salary, along with my Grandmother's teacher's union-negotiated salary afforded them a very nice, large brick home in one of the best neighborhoods in town. They have enjoyed a nice long love-filled life. I hold them up as the example of what true love should aspire to. Any of their five children who wanted to go to college enrolled. They traveled the world. Until I moved to the big cities and saw what true wealth was, I grew up thinking my family was rich upper middle class because my Grandparents took me to the opera, ballet, plays and musicals. They encouraged me to speak other languages and play musical instruments.

[tamarabamara]

continued...

This is not exactly the Bruce Springsteen cracker image Chris painted above. That's because he's being nostalgic about something he knows nothing about. My grandparents are proud American people you would be proud to call your family. They voted HAPPILY for Obama this year... their 87th year, I might add, even after growing up somewhat afraid of the black folks. So people, when you're just looking at those greedy CEOs being interrogated by Congress, or looking at the hard numbers, looking at the abject failure of the American auto industry, remember my Grandparents. They are real people who depend on those juicy union agreements to live out the rest of their lives, whether it be 1 day or 10 more beautiful years together.

GRANDPARENTS

[ched]

Who said anything about the companies going out of business? Bankruptcy allows the company to be reorganized, assets like private jets sold, management replaced (at long last), and creditors to get their money first (before shareholders, who have enjoyed the benefits of owning stock, and who must now deal with the downside), all while the company continues to function.

Situations like these, where the Boards and CEOs have run the company into the ground for their own aggrandizement, are precisely what bankruptcy is for.

[paixa3]

You mean Chapter 11 ONLY. Other chapters have different provisions.

[bartonfink]

open request for chris kelly: pls. address shareholders, corporate CEOs, golden parachutes, bailout $$$ being used for corporate junkets and perks, and general accountability in finance, U.S. manufacturing, and government, and, finally, professional athletes. thnx in advance

[WeAreTheBorg]

One thing he completely forgets is that the auto industry forms a huge industrial base that can be rapidly converted to war production. Remember WW II? For example, Ford City (a former Ford auto plant) started turning out B-24 Liberator bombers. Jeeps, tanks and other aircraft were also built in former auto company plants in incredible numbers. Our redeployable industrial might was one of the main reasons that Allies won WW II. It's suicidal to lose that capability. There is no guarantee that the next war will be over in hours or days.

This is why I have such a problem with all the computer components being sources from overseas. High tech warfare requires these components and overseas suppliers can be destroyed, supply lines interdicted. We need to keep some of this capability for our own good.

That being said, I think we do need to bail out the auto business with very heavy strings attached for the safety of the taxpayers.

[coco51]

I'm not sure I agree with this simplistic view. The ramification for Chrysler and other auto industry bankruptcy cuts a wide swath, think parts manufacturer and their employees *rivetheads* which translates into more Michigan towns and other areas being decimated finacially. If only banks are being offered bailouts how long can they survive if money is not coming in.

But hey, I'm not a finance major but it seems that the towns and cities that have lost auto manufacturers have not survived and never will.

[10ecvols]

Chris, thank you. Finally, someone has mentioned Cerberus and its vast holdings at its disposal to support the reorganization of Chrysler and GMAC. We need to stay on this point. Why is Cerberus coming to the US Government, and US taxpayers, to bail out its poor business decision? From your list of holdings, Cerberus has the funding and capital to support Chrysler and GMAC through this time. This has nothing to do with the government allowing Detroit to lose more jobs. You hit the nail on the head: why would taxpayers allow a private equity firm to have free rein of $25B USD?
Simple economics dictate those that don't produce a viable product go the way of the horse & buggy. The US Auto Industry has been arrogant. Only when Toyota and Honda entered the US market did Detroit respond with smaller and affordable cars to compete with Camry and Accord. The manufacturers have not listened to the needs of the energy industry (look at the history of the electric car) nor consumers until it was too late. I agree with CNBC's Chris Matthews. No one in these companies should earn more than our US President. We should demand all "perks" (private jets) be auctioned forcing execs to fly coach and stay in budget motels. We should stop use of luxury vehicles, private jets, large bonuses until they can build a viable product. Cerberus must be a part of the financial solution.

[Irishfly]

Once again, Chris, you have managed to be both funny and smart at the same time.

You are absolutely right. Holding on to badly made cars merely because, at one point, they were American made, is stupid.
I think that if Cerberus wants GM to succeed so much, their bigwigs should be forced to turn in their Mercedes amd Range Rovers for Dodge Neons. Ditto anyone else calling for this bailout.
A few weeks of driving one of those would cure the nostalgia.

And to save jobs, pensions, etc., why don't we give credits to companies making more fuel efficient cars? Maybe tax breaks to those employing the autoworkers laid off by GM?

[DQKennard]

I'm wondering if even as the auto companies asks for government loans, whether they actually *want* that help. It might be in their interest to go into bankruptcy as a tool to break the union and other contracts. Of course, their best scenario would be to get the Government loans (at presumably good terms), but still use their troubles as a lever against the "burdensome" contracts. This is especially true for Chrysler; Cerberus likely had in mind all along breaking the contracts and pensions as part of its acquisiotion strategy.

[frisbeeredcat]

GM would love to get out of paying their 1.2 million retirees health care and pensions. But what happens to the Americans that worked for 30+ years and live off these benefits. That would be a disaster. The UAW was largely responsible for creating a middle class in America. All wages are/were influenced by union wages. These are the same tactics the steel industry used to dump pensioners back in the 80's. I'd love to know how much capital GM has tied up in hedge fund investments and how much that is playing into this whole bankruptcy. No bailout, without opening the books of all 3 automakers so we know exactly what we are dealing with.

[HyperInfluential]

It's terrible to think that people could lose their healthcare and retirement through bureaucratic trickery! This is just another example of why we need to make those things social services, not commodities. It is never going to be profitable to feed and shelter people who no longer work! Their productivity is at an end, and you can't blame a nonhuman entity like a corporation for trying to find a way to get out of having to pay for their care. It just doesn't make sense on the balance sheet, and if that's all a corporation cares about, and nobody forces them to act like they care, they won't do it. It's better if the government steps in and says those things are American rights, like public school and the post office, not commodities that can be renegotiated if times get tough.

[datakleptomanic]

the big three don't need your help. cut 'em up and sell the fukkers off. American car companies are a crock and this article deftly explains it better than i ever could. Democrats need to stay out of this morass. there will be some pain, but someone will step in to fill the void.

[drkazmd65]

Yep,..

[HockeyMom]

Explain to me why bailing out AIG is so much more important than bailing out the big 3? Both companies have bad management.

My suggestion to the big 3 is to do an "Obama", yes a new verb.

Everyone who wants to see the auto industry succeed should go out and buy $500-$1000 worth of stock. Then the big 3 would truly be accountable and owned by the American people. Provide electronic reports on line, survey stock owners often and listen to their opinions.

To the management, I say stop playing golf, quite telling me you get work done between tees. yea right.

Start building something that is good to look at, but does not cost $1500 to repair in a 5 mile an hour accident.

We need to win this race, and don't let Bush screw it up during his lame duck session. Yes, he helped kill the auto industry by tax incentives for the wealthy, which only encouraged them to buy bigger and bigger buses. 5000 pound vehicle to buy one gallon of milk, never made any sense.

[repearwo]

Lou Dobbs gives me the creeps as well. That said there are other ways to help the auto industry. At http://1thirteen3.blogpsot.com I layout an alternate plan that is really about the Big Three of this "downturn" . They are Consumption, Savings, and Government Spending. They are the big three parts of GDP and given the proper attention bring along number 4, Investment.

The money does not always have to go to the overfed cats at the top. The simple truth is that the world economy still needs the American consumer. The rest of the world needs to grow their own consumer class and the US needs to wean itself from conspicuous consumption and put some money in the bank for our future and Investment that pays returns to us.

We need to get off our consumption binge and go back to buying goods built in the US by people from the US for people of the US. That is not isolationist, it is taking care of your home before you think about your neighbors. Globalism is here and that is good but only as long as it is good for everyone not just the owners of Business.

Three Quarters of us wanted change and about three quarters of those people voted for change. It is time we demanded that change start now. Let Congress know if they want to keep their seats they need to work for us.

[tdbach]

Complicated subject, handled with characteristic humor and insight by Mr. Kelly. But I disagree with his conclusions.

Yes, Chrysler is no longer the car company we once loved (or hated). It’s but one big, rusty fender in Rube Goldberg jalopy of a conglomerate. Yes, US car companies marketed to and fed the worst impulses of American excess that climate and credit could not long endure. And yes, US manufacturers have had a hard time catching up to the reputation for quality and endurance that Japanese manufacturers in particular earned, although they have made tremendous strides – at least in my experience (I’ve had 3 Fords over the last 10 years, all purchased used, all with well over 100,000 miles, and nary a problem among them). But a HUGE portion of our middle class workforce is tied to this industry, and it ain’t going to find a home at Honda America.

I think we have an opportunity here. I think we should “bail them out” but in so doing buy ownership interest in the companies. Not the way British and other European countries have socialized their auto industries, by simply pouring money into them to prop them up – which has been disastrous. We use our leverage to make them the platform for the next “Manhattan Project” – to create market-viable petroleum-free transportation technology, then sell off our shares.

Of course, that’s not nearly so funny.

[ConcernedAboutRFuture]

Ahhh, Chris Kelly. Always a fantastic read.... and always on the money.

I agree with you. Let the DINOSAUR American Auto Industry go out with the financial fire ball that is flying towards the US right now. No support for bad management, lack of innovation.... or its investors!

Thanks Chris.