Monday, December 22, 2008

Chrysler & GM Do Not Resuscitate

The idea that the Tiny Two ( GM & Chrysler) have been saved by the TARP Funds is comical. This is no more true than saying that the brain dead patient on life support is "saved" by the court order not to turn off the respirator. In both cases, neither of them will get up from their deathbed and carry on normal activities. The auto companies and the patient are both dead, it's just that the people who still want them to be around for a variety of reasons are not ready to pull the plug.

This circus will go on for quite some time, as it usually does in cases where only government intervention is keeping someone "alive". The truth is that Chrysler was dead when Daimler Benz sold them to Cerebus. Even Chrysler admitted it when they said, “Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to effect the restructuring.” Another very revealing statement, “Unless Chrysler’s labor costs can achieve parity with the foreign transplants and without the restructuring of Chrysler’s debt,” Cerberus announced. “Chrysler cannot be restored to long-term health and the government loan will be unlikely to be repaid.” came from Cerebus. This show us that even MBA private equity types make mistakes. The only difference between them and us is that their mistakes turn out to be doosies.

GM's partial restructuring will enable them to limp away from the billions of dollars owed to bondholders, while benefiting from the death of Chrysler. I would grab up the Jeep name plate as it will be available for a song. This will also let them make a claim that they are a much larger company, the same way little lizards puff up their chest to try to intimidate would be attackers. But, they will not have gotten rid of the UAW, which is really killing them.

How long will this GM Mini Series play out? My guess is only until the real recovery starts, or the final payment to the VEBA is made, which ever comes first. Once they have fully funded the VEBA, the UAW will have little reason to keep them around. This is not so much a bailout of GM, as it is a bailout of the UAW. If the economy recovers before then, and other businesses that have not received bailouts are back on their feet, what will GM say is their Raison D'etre?

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