The Obama Administration rejected the plans submitted by Chrysler and GM as part of the conditions of receiving funding from the Bush Administration. These plans were viewed as unrealistic, which is an understatement for saying Chrysler is essentially bankrupt. The Administration, while willing to advance another two months of funding for GM and one month for Chrysler, mentioned that bankruptcy might be an option down the road.
The Obama Administration imposed conditions on the short term financing, as any financier with leverage can do.
GM’s Chairman, Rick Waggoner, had to resign as will most of GM’s Board of Directors. Those that rode the company down should not remain in office. That is a fundamental rule of capitalism, even when imposed by the government. Waggoner headed GM for a decade. Regardless of the handicaps facing GM, he simply did not get the job done.
Employees, suppliers, dealers, investors, Michigan, Ohio, Indiana, and Wisconsin are paying the price for GM’s market collapse.
So too should management.
That I understand.
What is inexplicable is that Robert Nardelli, who previously failed at Home Depot, should stay on at Chrysler. The explanation is that Nardelli represents new management, which came in from outside the industry – thus new blood and a new perspective.
Nardelli was the bean counter brought in by Cerberus, when it acquired 80% of Chrysler from Daimler Chrysler (side bar: I’m exalted having sold my Daimler Chrysler shares a year ago, even after paying capital gains taxes). He was initially unwilling to cut his salary in negotiations with the Bush Administration.
Cerberus will in theory “lose” its stake in Chrysler, but all is not as it seems.
In acquiring control of Chrysler, Cerberus spun off the highly profitable Chrysler Finance Company to itself, thereby earning a nice profit stream.
In addition, Cerberus took ownership of the Chrysler’s Auburn Hills Headquarters & Technology Center, which at 5.3 million square feet is second only in size to the Pentagon. It then recouped much of its cash investment by mortgaging the office complex, and then sticking Chrysler with the mortgage payments.
That was the hedge fund Cerberus hedging its investment.
How valuable an empty office outside Detroit will be remains to be seen.
The next step was to maximize Chrysler's cash flow, priming it for a resale to the public.
Nardelli immediately fulfilled that objective by eliminating not just existing product lines, but more critically by eliminating funding for future products. He stripped the Chrysler design cabinet bare. It has nothing new to offer the public in future years.
Chrysler thereby needs Fiat, Nissan, Peugeot, Honda, Toyota, VW, someone, anyone, to supply it with a small car line to build in America. All but Fiat have passed on Chrysler.
A condition of the Chrysler funding is that the company reach agreement with Fiat within 30 days, at which point the Obama Administration will advance another $6 billion.
Fiat will provide Chrysler with a small car product line, but no money, in exchange for 20% of Chrysler. In other words, Chrysler hopes to survive by building Fiats in the United States with taxpayer money.
If AMC Jeep’s earlier affiliation with Renault, and Chrysler’s with Daimler, not to mention Chrysler’s acquisitions of Rootes Motors and Simca, failed, why do they think affiliation with a weak Fiat will succeed?
Fiat did not have a reputation for high quality in its earlier forays in to the United States, the joke being that Fiat stood for “Fix it again, Tony.”
We have to hope that the Chrysler-Fiat merger will succeed, but the odds are better betting on one of the three Detroit casinos.