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
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Maybe I'm just a little bit slow but explain this to me. We have bailed out investment bankers. AIG shows it's appreciation by going to spas after receiving $150 billion dollars and now we're going to argue about a $25 billion dollar loan to a group of industries that touch 10 percent of the workforce in this country?
Did you hear this morning that China is requesting a bailout from it's government? Can't blame unions for that and India is apparently asking for help as well.
I also find it amusing that we want all of the rules and regulations added to any auto bailout when we can't even find out WHO has received money from the 700 billion.
See K.J. Dwyer's Profile
American car manufacturers, by carving out a loophole for SUV's with regards to fuel emission standards (against all the conventional wisdom of virtually everyone else in the industry) literally advocated for their own death warrant (which has now come into effect).
Now, with absolutely no re-organization plan on the table, the "American" car makers come whining to the government, pleading for a bail-out, after years of irresponsible business models that exacerbated not only the environmental crisis, but their own increasingly obsolete place within the idustry.
Stupid, irresponsible, short-sighted, greedy, BASTARDS. They should all hang.
Unfortunately, the workers are the ones who will really suffer and the rippling effects of plant closures will have a devastating effect on the ancillary economic entities that are directly tied to these companies. We're basically talking about turning untold numbers of communities into Flint Michigan type ghost-towns.
If there is any kind of bail-out, the government must demand oversight of not only where this money is directed, but the business models that will be adopted. The captains of this industry have proven themselves utterly useless and incompetent in this regard.
First off one of the BIG reasons Honda and Toyota can undercut American car companies is they do NOT allow unions under any circumstances. Toyota is a well known union buster. In addition they relocate to the absolute cheapest part of America to ASSEMBLE their automobiles to reduce labor even further. Yes Toyota jobs are the best paying blue collar jobs in Alabama, but they don't make even 60% of what GM workers make if benefits are included.
GM is running out of money mainly BECAUSE it is an American company. In the 1950s when all American companies were doing it, GM put in place programs like pensions and worker health care in retirement. These were good, generous programs that really needed to be in place as social security was in its infancy and medicare didn't exist. The same people who are deriding the bailout, would be up in arms were GM to go into bankruptcy and shed the promises to their retired workers which are driving them to the poor house.
Also as to competition, Honda, especially on its cars made in Japan, is subsidized heavily by the Japanese government. In Japan universal health care has been implemented. While GM has to spend upwards of 2000 dollars PER car just on employee health care Japanese companies don't have to spend a penny on foreign workers and far less then American companies on American workers since they don't allow unions who can demand things like better coverage.
Here is the problem with US auto mfgs. versus Japanese auto plants.
American UNION auto worker... pushes a button, gets paid $36.50 an hour and pushes a button again. Not happy though. Needs more money and goes on strike. Often says "not my job."
Honda NON UNION worker, multi tasks, does several projects and gets paid $27 an hour.... and is happy. Multi task and multi function, equals efficiency and savings.
Anywhere I've ever encountered a union worker, they seemed to feel a sense of entitlement and a need to NOT work as hard as non-union employees...but get paid double.
You don't need to have a union represent you to be treated fairly in this country; our laws protect the worker and the consumer. The slave labor era in the US is over. We do not need unions.... or we will NEVER be able to compete in the world market.
While it may NOW be true that you "don't need to have a union represent you to be treated fairly in this country," that was not always - and outsiide the auto industry is not - the case. But do you really think that Honda or Toyota would pay their workers $27.00/hr if they thought they could get away with less? If UAW workers were not making "$36.50" or whatever the number actually is, I'm sure Japanes auto makers would pay less.
And, um, if you've ever done any reading on the subject you'd know that this statement is absolutely not true:
"our laws protect the worker and the consumer. The slave labor era in the US is over. We do not need unions.... "
We'd all like to think that's true, but if you've been paying attention the last 8 years - or in fact since Reagan - Republicans have consistently and effectively fought to reduce the effectiveness and enforcement of all such laws. Are unions blameless? Absolutely not. Can we trust corporations to do the right thing by workers? ABSOLUTELY NOT.
I'd like all of those who think auto assembly is nothing more than "pushing a button" to work at an Auto Plant for a few months .
Does anyone remember the tax subsidies that W. put in place for leases of SUVs? Also, remember the government's insistence that these massive passenger vehicles are trucks instead of cars so they are not subject to higher fuel standards?
We have subsidized the Big Three into extinction.
Detroit built the vehicles their customers wanted to buy.
As cars began shrinking in the 80's the market shifted to trucks, vans and SUVs
Toyota and Nissan's product mix relies heavily on larger cars like the Avalon and Lexus, and trucks and SUVs like Armada, Sequoia, Tundra, Titan, Tacome, Land Crusier, Pathfinder, Xterra, Highlander, none of which gets any better mpg than their domestic counterparts
This is not unique to detroit
Customers wanted these vehicles because they were given very large tax breaks and because they were not asked to pay for vehicles that met emissions standards on passenger cars.
Of course, people wanted them. The SUVs were subsidized. This also explains why consumers purchased SUVs from ALL automakers. What a gift!
One reason that Toyota is more successful than our automakers is obviously because of the breadth of their automobile offerings in terms of fuel efficiency. Another, is because of their extraordinarily successful market-driven design practices, called target costing in my line of work.
Toyota also has developed and mastered lean manufacturing which makes them more flexible and efficient than the Big 3 can hope to be in a decade.
Odd. Last I looked, congress was the body that enacted laws. Did "W" make an executive order?
Sorry. W's congress.
I knowww!!! All those Hummers driving around drinking gas like water AND getting tax breaks. How sweet it must be....for someone.
I'd like to hear from the author why Cerebrus purchased majority control in GM's finance division?
Did they see the Gov. payout before anybody else?
Did you know that Dan Quayle is the Director of Cerberus and sits on the Board of Aozora Bank? When GH Bush endorsed McCain for President Dan Quayle was sitting on the platform behind him and I thought at the time that as poor a VP as he was - he was still heavily involved in GOP Politics. There is no reason to believe that he wasn't aware of the Gov payout, given his relationship with the Bush family.
I can answer that one, having worked for them in the past.
GMAC, the ostensible financial arm of GM, needed to gain access to inexpensive funds, since GMAC was the umbrella company for GMAC-RFC (Residential Funding Corp) and GMAC Mortgage, as well as various Insurance, Auto Loan companies and even DiTech and the GMAC Bank)
In order to get these funds on the cheap, they needed to divorce themselves from GM itself, since their funding was tied to GM's rapidly deteriorating credit standing.
This proved problematic and took quite a bit of time due to entanglements. Internally, we referred to it as selling off just the bathroom of your house to a buyer while you retained the rest of the house.
Cerebrus was just one company that was interested in purchasing a controlling interest in GMAC. The others though, dropped out of the fight, leaving just Cerebrus as the final 'victor'.
This was happening just as the Mortgage Melt Down was beginning to set in... They may well regret their decision today given how those facts have shaped up.
The government has let many industries disappear from this country. But,. do we still subsidize tobacco farmers of all things? As bad as the Big 3 CEOs and management have been over the years, the Congress is even worse at fixing this problem. I'm not optimistic. They loaded that $700B bailout with pork and didn't bother with ensuring that the banks would start lending again. I could have written a better bailout plan on a dinner napkin.
Honda is moving all operations BACK to Japan. Try to keep up.
Incidentally this is true not just in the auto industry but in many other industries. By not providing universal health care we are at a heavy comparitive disadvantage to countries that do. A lot of GM's problems are, in large part, the governments fault. Making union busting illegal and providing universal health care would do more to help GM (and just about every other American company) then just about any other possible action. Yes GM made poor decisions on making SUVs (as did Toyota and Honda I'd like to point out, ever seen a Landcruiser?) but the reason it is dying faster and harder then its Japanese competitors is as much the fault of the US government as it is of GM's management who is doing decently with a rather bad hand.
Honda is moving back to Japan because if they make cars in Japan where health care is free they can save thousands in net cost. It costs far less to ship cars over from Japan (and pollute all the way) then it does to pay for the health care that our stupid system requires of employers. Universal health care would cost a 5% increase in taxes for the wealthy but it would save trillions for American companies and make us newly competitive with Japan and Europe who got their act together on health care long ago.
Honda, Toyota and Kia don't make cars in the u.s. ... they are assembled. The cars are manufactured in their respective country then shiped to various factors in the south like Alabama, Mississippi, Florida - to be assembled - states that have "right to work" laws - which is fine - but Japanese and Korean cars are not built here ..... What this debate is about is blameing the UAW for it's high priced members and over stocked health insurance and retierment funds. This whole thing - in part - is a way for the Republican party to fianally dismantel the Unions in this country and show that "they" are the cause for our financal troubles. But what the premise the article presents is true - that globalization has stripped away the existance of a meaningful and representative manufacturing culture in America that can be defined by individuals, communities and regions. And that our affiliation to them or any company is based on the remembrances and emotional connections we have with that product. However, if this deal is done correctly it has the possibility of not only securing middle class jobs; but also opening the door to green 21st century technology that is manufactured in the United States. The unknown uber companies that own and control other companies will always exist. But the future depends on making sure this is done correctly ..... it may not .... but then again it may.
Two important things you fail to mention.
First, one of the biggest 'liabilities' facing US manufacturers is the cost of health care, both among active employees and retirees. Other industrialized nations spend a fraction of what we do on healthcare and still manage to cover everyone. That's a huge competitive edge that foreign companies have.
Second, "free" trade is a myth. Nearly every other industrialized country in the world uses a combination of tariffs and/or import restrictions to protect their domestic markets. Only the US is dumb enough to allow foreign countries to flood our markets with cheap goods while being blocked from their markets.
Just wondering. Was Circuit City selling electronics no one wanted to buy? Was Starbuck's selling coffee no one wanted to buy? Was Mervyn's department store in CA selling clothes no one wanted to buy? Was Linen 'n Things selling linen and things no one wanted to buy. Was Citicorp selling whatever it was they were selling that no one wanted to buy? Go down the list of companies that have lost revenue recently. Were they all selling stuff no one wanted to buy? That analysis seems only to apply to Detroit when so many other companies are also in trouble.
Who was buying all those Suburbans, Tahoes, Explorers, Dodge Rams, Escalades, and whatnot for the past 15-20 years? Of course, Detroit should have had a Plan B making smaller, more efficient cars and they made some but APPARENTLY NO ONE WAS BUYING THEM.
And I'm just wondering how many Escalade drivers would have purchased a smaller, more efficient Plan B car if it were the one rolled out and displayed with a sexy, long-haired blonde with low-cut, sequenced gown running her milk-white, long, manicured fingers over its sensuous curves and patting its chubby tires at the January Auto Show instead. How many times have you or I called GM or Ford or Chrysler and said, "Hey, why the heck don't you make me a gas-guzzling quarter ton sedan with faux fenders and an engine guaranteed to seize and sputter and stop running reliably in its 39th month? Something big and ostentatious, please, that I can use like a tank to run those Japanese cars off the road and assert my American imperialism." "Market Demand" is the auto company MBAs excuse for inability to project future transportation needs based upon real factors like fuel source, emissions impact, population concentration. Detroit miscalculated...just like G. W....and now people will suffer. $25B today will only buy them time. It will not ensure their survival.
No one forced Americans to buy gas guzzlers. Talking with my 85 year old dad, we marvelled at how, when gas prices shot up to $4.00/gallon, people still keep driving those big SUVs 75+mph on the freeways when we all know by now that it's bad for fuel economy. My point is that Americans share some blame for their unwise purchases over the last dozen years as well as Detroit. Why else would Nissan and Toyota make large V-8 powered SUVs and trucks as well?
If Detroit was able to make smaller, more efficient cars tomorrow, with the current low gas prices, I bet some would still be buying large gas guzzlers at discounted prices instead of the small cars thereby leaving Detroit with unsold small cars.
My suggestion would be to have 2 different types of nozzles at gas stations, like they did when they brought out unleaded gas. Gas guzzlers could only use the nozzle that charged $4.00/gal and hybrids could only use the $1.50/gal nozzle. That might rearrange people's priorities.
As long as people continue to vote for one of the two corporate parties, the government will continue to do the corporations bidding.
It isn't rocket science.
The oil companies should be the ones to bail them out if there is to be one. They are the ones that are responsible for the feet dragging in the R&D to begin with.
http://mo-pheus.blogspot.com/2008/08/did-you-know-there-were-electric-cars.html
Good site. Thanks. 8-)
Great comment! I was getting ready to comment when I read yours. I had the same idea. The oil companies made record profits last quarter again, and the upper management folks get huge salaries and bonuses from gouging the rest of us. They can afford to bail out the auto industry and have more reason than anyone to do so. Why can folks like us see this as a good idea when no one in the media or in Congress seems to notice big oil's reponsibilty for and complicity in the economic problems (not to mention the damage to the environment!).
Dear Mr. Obama:
Please do not vote present on the Detroit bailout
I understand that you are indebted to the unions, but for ones the REPs are right, this bailout should be conditioned new management, and green technology; resigning your senate seat was not a great first impression of your leadership.
You cannot vote present anymore, the buck now is on your lap.
FYI, he cannot vote at all, as he resigned from the Senate. Send an e-mail to your representatives and senators.
You can not give money to the same people that bankrupt a company ( or a govt. and expect different results. American could be at the forefront if they would come up with air, water etc. cars that europe has had for years because they already had high gas and did something about it .I say get rid of those CEO that force us to be dependent on oil, SUV, low gas milege, for that matter ,I bet if we voted out congressmen benifiting from big oil, we would not have war.. Honda doesnt need a bailout because you own one, you want another one and its dependable ..You feel like they care about customers..Our american car makers could be great again, or they could sink, its up to them..
Thank you, Chris, for information I did not have on Chrysler. I wonder how much more I have missed. Please keep on top of this and let us know what is really going on. I have a feeling that oil, greed and disunity are a big part of what is going on with the auto industry.
If cars can be built and used in Europe that get better gas mileage than we git, what is wrong with this scenario? I wonder, too, about what other things within the auto industry could we have had in the past that would make the future more ecoligcally sound? Maybe we should have been paying more attention.
We have an opportunity to let the auto makers who "made their bed" die in it and start afresh with ecologically sound transportation...not only cars, trucks, suvs, hummers, but...surprise, surprise...Mass Transit, which much of Europe uses. What is wrong with us? Yes, we have lots of area to cover, but we has wonderful, brilliant people who want to make a difference. Why aren't we listening to them? Thank you Chris, another great post. Please keep them coming.
One more time. American workers are not at fault for Fat-Cat desicions made at their expense.
About 10% of Americans are fed, clothed, and driven to school by the Detroit manufacturing sector. We invented much of modern automotive tech, and can improve it rapidly given the chance.
So you hate the financiers, the capitalists. Fine. Hate them. But don't put our country into another Great Depression by pulling the final trigger.
Regulate, control Detroit, great. It's about time. But to destroy the last of the great manufacturing sectors of our economy -- supported at least 5-to-1 by other businesses, including parts places, restaurants, and garages -- that's just spiteful and ultimately suicidal.
"...and can improve it rapidly given the chance."
What stopped you from improving? When your competitors did?
This is capitalism. If you make bad products or has bad ideas or management, you fail. Thats part of the American dream is it not?
Remember the oil crisis? Not the one now, but the one in the 1970s, when everyone in America KNEW we had to do something about oil, gas, and mileage.
You spent the 80s building large houses on wheels and wondered why they werent selling as well as the better gas mileage imports.
You spent the 90s building large mansions on wheels and wondered why they stopped selling as gas prices rose.
Sure, we could keep enabling your shockingly short term memory, or we could move on as a country and let people with actual vision continue.
Great article!
Cerberus Capital Management L.P. thought they were smarter than Chrysler and Daimler Chrysler both of which could not make a go of it.
They have been trying desperately to unload, partner up with, merge or partition up and sell Chrysler for the last 8 months.
They failed to do that. Obviously they have no intention of running it as a successful company.
Let Cerberus get their investors to cough up the cash to keep it going.
Chrysler was doomed when Cerberus put Nardelli in charge.
Yes that Nardelli of running Home Depot into the ground and pocketing 210 mill infamy
Chrysler would have been much better of in the hands of Canadian auto parts giant Magna, who has a stake in a successful chrysler and understands the auto industry
Nardelli is a loser and so is Chrysler. Let 'em sink together.
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