Your tweedier auto writers used to like to sit around bemoaning the idiocy of Wall Street and its single-minded focus on short-term results, to hell with the publicly-held car companies' long-term prospects -- as expressed, for instance, in quaint matters like a firm's commitment to engineering and manufacturing excellence or, heaven forfend, the well-being of its workforce. Now with the pending sale of Chrysler to the private-equity firm cum hedge fund Cerberus Capital Management, we same industry scribes may soon find ourselves longing for the transparency, accountability and kindly benevolence of publicly held companies.
If there were ever an example of all that's wrong -- and all that's going to be wronger -- with American industry, it's to be found in the Chrysler saga.
Many will know Chrysler, then America's number three domestic auto maker, was swallowed in 1998 by Daimler-Benz at the behest of its swashbuckling former chairman, Juergen Schrempp, an erstwhile diesel mechanic (and, by all accounts, world-class megalomaniac,) for $36 billion. Fewer will recall that this so-called "merger of equals" immediately cost tens of thousands of workers their jobs and the Chrysler executives who remained most every scintilla of their authority. Soon afterwards, Chrysler's scrappy Plymouth division was given an ill-advised trapdoor, its sales volume lost forever. But such was the cost, the unsentimental Germans explained, of realizing the "synergies" of the two companies.
Ah, synergy. Nine years later, Cerberus has had to scare up just $6 billion to buy Chrysler, the market evidently concluding that Daimler's magic touch, in nine short, synergistic years, had caused Chrysler to shed an embarrassing 80% of its value. Capital is fickle, Apple iPhones are sexier, but, still, you gotta say, Nice work, herren!
Addressing his firm's $30 billion miscue, Daimler's current chairman and former Schrempp golden boy, Dieter Zetsche, shared a belated realization. "The American volume customer is not willing and is probably not able to pay premium prices for premium technologies."
"Well, excuse us!" perhaps we ought to have said. But, instead, the statement caused many who'd driven Chrysler's current model line to fall about laughing, as, aside from the firm's rather successful Chrysler 300 model, which shared some of its better pieces with Mercedes' E-Class, not a single Chrysler product boasts anything remotely approaching premium technology (nor, it should also be noted, are its prices "premium;" people don't buy the cars in spite of their low prices - they're that unimpressive.) Indeed, if anything, Daimler expanded and fortified Chrysler's already robust reputation for building crap automobiles, while the merger can also be credited for helping the German firm concomitantly crater its own 100-year-old name for unassailable quality.
Back in Michigan, the sad fact is the sainted memory of Walter P. Chrysler, who prided himself on his firm's engineering excellence, (hydraulic brakes, anyone?) has been being besmirched hardcore since the 1970s. That was the first time the good ship Chrysler began to list on account of its executives' belligerent refusal to acknowledge rising gasoline prices and aggressively develop smaller cars. In the 1970s, Chrysler circled its enormous sedans, Conestoga-wagon style, while the energy crises raged; post-9/11, after Daimler took over, the new German-inflected Chrysler sent forth a bewildering array of thirsty SUVS and new and unnecessary Jeeps (a Chrysler division since 1987) to miss the mark.
To be fair, there were some clear benefits to the 1998 merger. For instance, Chrysler chairman Bob Eaton was persuaded to step away from the boardroom table with a sum not unadjacent to $61 million, his trusted deputy, Robert Lutz, today the understandably spry 75-year-old major domo of General Motors product development, availed himself of a $25 million golden parachute, while 30 other top Chrysler executives split another $300 million, making for some very soft landings indeed. Perhaps their haste to scarper indicated they knew something the market and Daimler didn't, like the fact that a company whose profitability was solely dependent on sales of retrograde SUVs and pickups was worrisomely vulnerable to upturns in gasoline prices, a widely anticipated wave of new Asian competition, and the inevitably shifting pendulum of automotive fashion.
By all accounts, the purchase price Cerberus paid will be dwarfed by $18 billion in estimated pension and healthcare obligations owed by Chrysler to its retirees and UAW workforce, a sum large and scary enough that it was widely deemed worthwhile for Daimler to walk away from the whole shebang just to be rid of it. And here is where Chrysler's new private equity ownership is likely to come in handy.
Its hasty promises to union leaders to the contrary, there is every reason to believe that Job No. 1 will be shirking those obligations to workers. And while lawyers, investment bankers and the Cerberus brains trust are working around the clock in aid of this and the likely Job No.2 (outsourcing production to China,) Cerberus management has one key leg up on those who also proposed to buy it, especially the unions who reported they couldn't even get Daimler or its bankers on the phone to discuss an employee buyout option or its possible terms.
Cerberus (named, ominously, after the three-headed dog of Greek mythology, who guarded the gates of fiery Hades,) is thick with Republican Party faithful. Biographical info on Cerberus founder, Stephen Feinberg, is notoriously hard to come by, but this titan of industry is known to have cut his teeth (and presumably learned an elevated sense of ethical conduct) alongside Michael Milken at Drexel Burnham Lambert during the go-go 80s. And Feinberg hasn't been too reclusive to be a major Republican Party donor. While he continues to keep his own profile low, Feinberg has also brought in some high-profile Republican talent to help run the show at Chrysler. There is, for instance, the company's new chairman, John Snow, who was there to announce the sale in Germany. A non-entity with little experience in the automobile business, Snow's ties to the Republican establishment and to the Bush administration, as one of its former treasury secretaries, point to his prospective utility where rewriting the rules of labor relations and pension accounting are concerned. Former defense secretary Donald Rumsfeld also counts himself among the elite crew whose wealth has been dunked into the smokestack industry pool by the Cerberus' management team.
Where and why do they find these bozos? Next thing you'll know they'll be hiring GOP stalwart and former Vice President Dan Quayle. Oh wait, they already did. The man who forgot how to spell potato is chairman of Cerberus' global investments unit. Can you imagine corporate officers accountable to shareholders choosing him for an important job?
Fans of oligarchy will appreciate, too, that Cerberus' first investment in the automobile business was the purchase last year of General Motors Acceptance Corp., GM's captive finance arm, which underwrites hundreds of thousands of car loans and leases every year. With the keys now to Chrysler Financial, the huge finance arm of Chrysler, included in the sale of America's once-again third largest car manufacturer, the opportunities for synergy (and predatory loan practices) will once again abound. Hades, here we come.
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