Chrysler rescued but Cerberus gets burned

May 1, 2009


Chrysler gets an Obama bonus in the form of a rescue plan, but its main stakeholder Cerberus has to forfeit its holding as part of the deal

We have been following the declining fortunes of Chrysler in recent posts

We speculated that its situation might match the undoubted energy and leadership style of newly appointed leader Bob Nardelli, who would at least go down fighting. Which seems to be what is happening.

As the BBC put it

Chapter 11 protects firms from their creditors, allowing them to rearrange their finances while still trading. The move came after talks had broken down with Chrysler’s lenders late on Wednesday [April 29th 2009]. Chrysler chief executive Robert Nardelli said he will step down after the company emerges from bankruptcy. Mr Nardelli has been in charge at Chrysler since 2007 but said he felt it would be an appropriate time to leave after bankruptcy. The filing for bankruptcy protection will lead to the forming of a new corporate entity. Fiat will take a 20% stake, with the possibility of it rising to 35% if performance targets are met. The US Treasury will have an 8% stake, a union-run trust fund VEBA will take a 55% stake, and the governments of Canada and Ontario will gain a combined 2% stake. Current owner Cerberus will forfeit its 80.1% stake

Cerberus is burned

You might feel the winners will be Chrysler’s employees who have a stake in the trust-fund, and arguably more job security. Unless details prove otherwise those entrepreneurial venture capitalists Cerberus are losers. Even in America, their once vaunted capitalist ethos seems less palatable now. Depending on your political and economic perspective you might also feel the US taxpayer is being granted an opportunity it can’t refuse to buy into the rescue.