GM-Chrysler Merger News and Discussion - It's Off

Discussion in 'OT Driven' started by TriShield, Oct 14, 2008.

  1. TriShield

    TriShield Super Moderator® Super Moderator

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    RANTS #467 - In The Land of Not Good, hysteria sets in.

    By Peter M. De Lorenzo
    October 15, 2008

    Detroit. The swirling maelstrom of conjecture, rumor and fabrication that’s enveloping the Motor City (aka The Land of Not Good) right now concerning GM and Chrysler has spun completely out of control. So much has been said by so many people who know so little about what’s going on, that it’s truly breathtaking to contemplate. As a matter of fact, I have never seen anything like it in all my years in this business.

    With that in mind then, I thought it would be good idea to take a deep breath and talk about what we know first, before we venture into how any future scenarios might play out.

    The Cerberus Fiasco.

    First of all, as I’ve been warning for quite some time, the Cerberus “miracle” planned for the resurrection of Chrysler was a flat-out disaster waiting to happen. And unfortunately for the people at Chrysler, my prediction is unfolding as you read this. That Cerberus was completely out of their league and unencumbered with the first shred of knowledge or expertise required to turn around a flailing, ailing and deflating American automotive icon is a known fact.

    And on top of that, the unbridled hubris that they brought to the table, which deluded them into thinking that they actually could venture into one of the most challenging businesses in the world - at exactly the most crucial juncture in American automotive history - and emerge with a nice big payday in a couple of years, is beyond comprehension.

    That Cerberus assembled a “dream team” (at least in their estimation) consisting of Bob Nardelli - a man who was such an abject failure at Home Depot that the company has taken years to recover - and Jim Press, the architect of the modern miracle that is Toyota in the United States today, and “assumed” that they could just throw a switch and it would all be good, makes me question the sanity of the powers that be at Cerberus.

    That the Cerberus brain trust was that out of touch and that detached from the reality of the situation is simply scary. There’s really no other word for it. Needless to say, the fact that things didn’t go swimmingly well for the Cerberus “dream team” was no surprise in the least. Assembling a team of alleged all-stars on paper doesn’t automatically translate into a winning performance, and Cerberus proved that timeless adage once again, but with dramatically painful consequences unique to its self-inflicted predicament.

    To make matters worse, Chrysler’s public pronouncements have consisted of a particularly insidious form of overpromise, underdeliver bluster from the very beginning. Nardelli’s obnoxiously-tinged arrogance combined with Press’s incessant habit of lecturing the media about how super things are – as opposed to how truly horrific things actually were – wore thin months ago. And it seemed that the grimmer the sales numbers were for the domestic auto industry - with month after month of catastrophic results led by Chrysler’s shockingly dismal performance - the more the rhetoric by Nardelli and Press was ratcheted up. And the more Chrysler's credibility plummeted.

    As a matter of fact as recently as two weeks ago, Chrysler was at it again, this time led by COO Tom LaSorda – a nice guy who has unfortunately been turned into the “Baghdad Bob” of the domestic auto industry by this Cerberus-orchestrated nightmare – extolling the virtues of Chrysler’s future electric vehicle program, a program that has little chance of happening in a future scenario of a Cerberus-planned exit strategy from the auto business.

    The fact that this embarrassing smoke and mirrors, “it won’t be long now” public disinformation campaign has continued along unfettered - without even the whiff of reality emanating from Chrysler - has been absolutely reprehensible, in my estimation.

    With all of this in mind, then, let’s talk about the so-called “merger.”

    A disastrous scenario by any measure.

    Let me get this straight right off the bat: The reality of a merger between GM and Chrysler would be an unmitigated disaster of incalculable proportion, one that would decimate both companies. You can spare me with the “economies of scale” argument (the darling rationale of “expert” analysts by the droves), too, because as logical as those arguments may be the fact of the matter is that putting two companies together that are already slumped against the ropes and gasping for air is sheer lunacy.

    When you have one company that has too many models, too many divisions and too many dealers, how could you possibly think that combining that company with another company that has too many models, too many divisions and too many dealers would be a good idea?

    I just about choked in my cornflakes reading as some pundits were extolling the size of the newly merged company, as if that would somehow justify all of the negatives associated with these two companies coming together.

    It doesn’t. Not even close, as a matter of fact.

    Besides, the “size” of the merged company wouldn’t resemble any of the estimates, not if any rational thought came into play.

    Cerberus waves the white flag of surrender, now the real maneuvering begins.

    No, the real meat of the GM-Chrysler talks revolved around Cerberus wanting out – and wanting out right now – of Chrysler. And if everyone would step back and let that thought percolate for a minute, then there might, and let me say that word again – might – have been some logic to a GM-Chrysler deal. But that deal wouldn’t have been a merger. Instead it would have been a takeover, with GM relieving Cerberus of control of Chrysler.

    The important thing to remember in all of this is that Cerberus is privately admitting for the first time – despite its tediously embarrassing pronouncements to the contrary – that they are done with the car business.

    The Cerberus obsession with Chrysler was akin to the dog in the neighborhood that liked to chase cars all day, until one day that dog actually caught a car. But then after finally catching a car, the dog doesn’t have the first clue as to what to do next. Cerberus caught its “car” in the guise of Chrysler, and armed with zero cumulative knowledge about the business, it demonstrated its relentless cluelessness and utter futility at every turn.

    If there had been any agreement at all between GM and Chrysler, it would have revolved around GM taking control over Chrysler’s assets in exchange for the rest of its stake in GMAC. That way Cerberus would walk away with 100 percent of GMAC and GM would be left to sort out what to do with Chrysler’s existing operations.

    GM’s interest in Chrysler: Why? And would it have been workable?

    Why would GM have been interested in doing this if its situation is already beyond precarious? There are three reasons from GM’s point of view, actually (beyond the usual mention of cost savings). 1. To gain control of the Jeep brand, so it could be merged with Hummer (that is until Hummer is sold). 2. To gain control of Chrysler’s minivan franchise, and its engineering and development expertise in that segment. And 3. To prevent a major global competitor from gaining a major foothold in the U.S. market by taking over Chrysler and its dealer network. (Analysts have also mentioned Chrysler's $11.7 billion in cash on hand as a lure for GM, but even if that cash is verified, I remain highly skeptical that it's enough given the horrendous task at hand in figuring out what to do with the parts of Chrysler that GM doesn't want.)

    It should be obvious that under any takeover scenario Chrysler would be gutted of people and nameplates. After all, the last thing GM needs is more truck and SUV capacity – or more cars to sell for that matter - so the likelihood of GM hanging on to the vast middle management bureaucracy of Chrysler, or its mediocre product portfolio, is slim and none. In short, GM would “cherry pick” only what it wanted from Chrysler, which means that the impact in terms of human capital would be absolutely devastating. How bad would it be? I estimate 80 percent of the current Chrysler workforce would have to be eliminated for any of it to work.

    Even if GM had gained control over Chrysler and only took interest in Jeeps and minivans, would it have worked? From where I sit, no, because GM has been operating with a divisional structure that grew obsolete 25 years ago, while refusing to acknowledge the reality of its too many models-too many divisions-too many dealers conundrum. So, with GM already teetering on the edge of corporate disaster, why would they have wanted to add to the confusion?

    Chrysler’s fate now etched in stone, as GM’s fate takes an ominous turn.

    With Cerberus being “done” with Chrysler, the fate of the auto company based in Auburn Hills has been set. Within six months, Chrysler will be taken over or “parted out.” Either way, Chrysler will cease to exist as we know it by next spring, if not sooner.

    As for GM, the fact that the company’s management is exploring all options at this juncture is telling. Yes, the national and global financial crisis and the paralysis in the credit markets have been brutal to Detroit in particular, but GM’s “talks” with other automakers smacks of desperation, there is no doubt about it. Especially with the news that GM approached Ford on the idea of a more formal, large-scale partnership (beyond the small technical partnership they already share in a few engineering areas) even before the Chrysler discussions, according to Bill Vlasic, reporting for The New York Times. Those talks went nowhere, as Ford wants to go on its own path.

    As hard as it may be to believe, GM may be next up behind Chrysler to face elimination, consolidation or ruination. The first 100 years for GM blew by in a blur. The next twelve months, on the other hand, are shaping up to be an excruciatingly painful siege that could determine the very existence of the company.

    Simply incredible.

    And one final thought: To demonstrate just how crazy things are getting in the Motor City, I will bring forth a new scenario that’s emerging, and that is that the GM-Chrysler talks have ended for good (the word was that they were only put on “hold” due to the burgeoning financial crisis). Instead, GM has already moved on to renewed, serious discussions with Carlos Ghosn about the possibility of merging GM’s global operations with Renault-Nissan.

    Needless to say, we have a developing situation here in the Motor City. I just hope we can survive the hysteria long enough to sort it all out.

    Thanks for listening, see you next Wednesday.

    [​IMG]
     
  2. MR. Marti

    MR. Marti New Member

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    wow, I read the whole thing and that's just nuts.
     
  3. Supernoma

    Supernoma servus publicae OT Supporter

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    The vultures are circling, Challenger/Ram will be Chrysler's swan song.
     
  4. Cock Diesel

    Cock Diesel New Member

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    Chrysler was done moments before Cerberus took hold of it. I bet they'll suddenly go under with no warning just like Bill Heard. :dunno:
     
  5. Run N. Gun

    Run N. Gun Active Member

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    That article is spot on. One of the two companies would have to be fairly profitable, in order for the merger to be even remotely successful. The auto manufacturers are almost in the same financial situation as the airlines.

    One thing I'm wondering is (and I'm asking out of ignorance) how are the auto workers unions going to have any leverage to be effective in a time like this? Wouldn't now be a good time for the manufacturers to push the union folks out the door and replace with non-union workers? I would think that workers would leave the unions in droves because some employment is better than none and would eventually lower manufacturing costs, somewhat. Again, I'm just not that familiar with the whole UAW scene so please educate me. Thx!
     
  6. deusexaethera

    deusexaethera OT Supporter

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    Sell Jeep to Tata Motors. They're already using the Wrangler and Cherokee chassis' in their SUVs. Better than the Chinese buying it, but then again the Chinese do have rather a lot of US Dollars to spend right now.

    Dodge is probably healthy enough to spin off; it's the only brand that sells practical vehicles, big trucks, minivans, and sports cars all in one. It might not sell a lot of vehicles, but the Viper, Ram, and Caravan have enough collective cachet to keep things going without the Chrysler boat anchor tied to their ankles. They would need to ditch a couple of the muscle cars and bring back the Neon, though; their selection of small cars is pretty weak at this point.

    Chrysler...I hate to say it, but there probably isn't anywhere for Chrysler to go at this point. What does the brand even represent anymore? Their most remarkable car was a rebranded Benz, and their most well-known car is the Sebring. Maybe VW could buy it, since they've been showing increased interest in Chrysler's R&D lately.

    Mopar still has a future; Tata Motors could probably make use of it, but it might actually make more sense for it to downsize dramatically and continue making parts like Delphi does (or did), but for anyone who wants them, which would relieve them of having to cheapen their parts because the bean-counters say so. My dad's old minivan is chock-full of Mopar, and almost nothing on it has ever broken.
     
  7. deusexaethera

    deusexaethera OT Supporter

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    Back in the day, Appalachian coal miners literally fought to the death to protect their company-sponsored "union" bosses against those evil Federal inspectors and police who wanted to take their pittance and their jobs away; you don't have to provide for the people to win their loyalty, you just have to convince them that you're giving them the best of all possible outcomes.
     
  8. Bernout

    Bernout OT Supporter

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    Interesting... In 1920 Walter P. Chrysler retired from being President of Buick and VP of General Motors. Four years later he introduced his own new vehicle line.

    Funny how things come around full circle...
     
  9. Run N. Gun

    Run N. Gun Active Member

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    Great point Deus, and do I get that BUT - to work or not to work? In a crappy economy, I would think that food, shelter and indoor plumbing would win the survival instinct vs hanging onto their UAW loyalty card. My assumption (could easily be wrong here) is that people would work for a company offering a non union job rather than sit, unpaid and still tied to a union, especially with our economy in the toilet. Bargaining leverage for the unions is almost gone, if GM isn't selling cars at all, which appears to be the case.
     
    Last edited: Oct 17, 2008
  10. TriShield

    TriShield Super Moderator® Super Moderator

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    Fuck, it looks like this could really happen.
     
  11. victimizati0n

    victimizati0n New Member

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    the only thing that is going to happen is chrysler cars will be better built, but it ends there gm will lose money over this
     
  12. Jake!

    Jake! Guest

    there will be no more Chrysler cars
     
  13. August Burns

    August Burns New Member

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    as much as im a Ford guy, I want both GM and Chrysler to be separate. I miss the days of the "big three."
     
  14. TriShield

    TriShield Super Moderator® Super Moderator

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    They might do to Chrysler what Chrysler did to AMC in 1987.
     
  15. Run N. Gun

    Run N. Gun Active Member

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    :noes: There has to be some truth that the discussions are taking place. GM isn't making an effort to deny anything that I can tell. It's obvious they aren't selling cars.

    Then there is the whole Tesla layoff, relocation.... Sad, really.
     
  16. Mitchj

    Mitchj OT Supporter

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    Trishield, what do you think would happen to Holden if GM really does go under?

    Especially since we rely on GM US technology as core components for our cars.
     
  17. twistid

    twistid Banged By Super Models Moderator

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    last weekend i was saying: GM wants jeep, and they'll sell off hummer to tata... everything else dodge/chrysler will go away... viper may be sold off, but everything else will die:o
     
  18. deusexaethera

    deusexaethera OT Supporter

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    Don't tell me Tesla is going under too. Goddamnit.
     
  19. Mitchj

    Mitchj OT Supporter

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    if anything this merger is just to give GM enough capital to build some worthwhile cars. They do have the know how.

    Chrysler doesn't make good cars, they will likely cease to exist.
     
  20. TriShield

    TriShield Super Moderator® Super Moderator

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    Holden and GM's other subsidaries run independently of the mothership so they wouldn't exactly tank of GM does.
     
  21. deusexaethera

    deusexaethera OT Supporter

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    The Mother of All Clusterfucks. :rofl:

    Yep, that's pretty much it.
     
  22. Mitchj

    Mitchj OT Supporter

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    the merger will allow them to sell brands and raise capital for some R&D.

    But thats obviously not the problem, GM itself has plenty of brands it could sell off. Just get rid of all the unprofitable ones and cut your dealer network down
     
  23. TriShield

    TriShield Super Moderator® Super Moderator

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    GM's brands are worth nothing, so are Chrysler's. Even Jeep is virtually worthless.

    The only thing GM can sell from itself and Chrysler are hard assets. GM has sold almost all of theirs, if they take Chrysler then they can sell some more.

    Still the amount of money it would raise won't sustain GM at it's current pace for very long.
     
  24. TriShield

    TriShield Super Moderator® Super Moderator

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    Editorial: General Motors Death Watch 204: GM Will “Absorb” Chrysler

    By Ken Elias
    October 17, 2008

    General Motors is on the brink of a financial disaster. It’s managed to keep out of the abyss through asset sales, hocking the company store, and yes, cost cutting. CEO Rick Wagoner’s “plan” might have worked had the economic winds blown more favorably. But they didn’t. The automaker is months away from a liquidity meltdown. Everyone who supplies GM knows it. The rating agencies know it. And yes, Rick Wagoner knows it. GM has to secure new funding or face a bankruptcy judge in Lower Manhattan. So now let’s talk about Chrysler…

    Chrysler Motors LLC is owned by private equity fund Cerberus (save a small chunk retained by Daimler). Since purchasing the automaker, Chrysler has amassed an $11b cash trove. In the main, they assembled their hoard by not spending any money on capital expenditure, R&D, engineering or other necessary essentials to carry on as a car company—to the point where the product well is dry.

    No surprise there. Cerberus’ real goal in all this: merge GMAC and Chrysler Financial into a global finance company and exit from manufacturing. It believed that Chrysler Motors could survive with rehash of its existing products and as a distributor of other OEMs’ products for a while– until it could find some sucker to buy it.

    Like everyone else, Cerberus never expected the meltdown in the auto or credit markets either. So now the Hades Dog is stuck with a manufacturer with no future. And it still has all the liabilities. A Chapter filing would wipe clean Cerberus’ equity investment; maybe five billion dollars gone. So why not follow GM to the federal bailout trough and wait for better days?

    Simply put, it’s not politically feasible to provide loan guarantees to a company owned by private equity. First, it would rescue “Wall Street” guys who pay themselves millions of dollars year. Steve Feinberg’s net worth might still be measured in the billions. Second, even if loan guarantees were provided, Chrysler is nothing more than a shell of company anyways. It would be good money after bad.

    Meanwhile, GM needs cash STAT. Washington’s printing press already faces a meltdown, as a voters’ bailout fatigue threatens a political backlash. Given the private equity angle, the feds would look to save GM (and Ford) but let Chrysler go.

    Only that won’t work either. It’s simply not equitable to have the government make those kind of decisions when voters (e.g. the UAW, suppliers, dealers, etc.) involved with Chrysler are spread across almost all political districts. Imagine the phones ringing in Congressional offices. Washington would be in a bind– save Steve Feinberg and take the wrath of voters everywhere, or let Chrysler go and just save GM and hear about the inequity of the “playing favorites.”

    The best case – and this is how it’s playing out – is to let GM “absorb” Chrysler Motors and give Cerberus an equity piece in GM. No doubt, Cerberus will take a writedown, but something is better than nothing. OR – trade Chrysler Motors for the rest of GMAC. Hmmm. Either way, both Cerberus and GM come out ahead. In theory, the new GM controls 30 percent of US auto sales in market share, 50k more workers (soon to be eliminated but we’re not going to tell anyone), additional plants, and 3k more dealers. But most importantly, it has a larger political footprint.

    And so GM will acquire Chrysler. A deal that has nothing to do with synergies, cost savings or parts sharing. Nope, it’s all about guaranteeing that Washington saddles-up to the loan giveaway bar for Detroit. Billions and billions of dollars for guarantees or direct loans, all paid for the American taxpayers– who buy more than 50 percent of cars from foreign auto makers. All justified in saving a great American icon of industrial might, a driver of new automotive technology (Volt anyone?) and preserving jobs in the heartland.

    But you won’t hear the truth from the auto execs at GM, or analysts or the automotive scribes. Wall Street will celebrate the deal (deal fees in a lackluster M&A market). The automotive media will herald the “bold stroke of genius” and “the next 100 years of GM” or something to that effect, and the auto execs will point to synergies, efficiencies, and other BS.

    Everyone else will simply ask WTF? And we just told you the truth: it’s a deal designed to absolutely, positively insure that Washington provides a massive bailout to GM in early 2009. (Ford will follow along on the gravy train too… but that’s another story.)

    So there it is – the real reason this deal will go down. Washington will have to rescue GM now, it has no choice. The private equity guys are out of the picture (and off the hook for Chrysler’s liabilities too). The political dilemma solved. Could you script a better scenario?

    http://www.thetruthaboutcars.com/general-motors-death-watch-204-gm-will-absorb-chrysler/
     
  25. TriShield

    TriShield Super Moderator® Super Moderator

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    Editorial: Chrysler Suicide Watch 40: GM Merger A Done Deal. Or A Breakup. Or Something.

    By Robert Farago
    October 17, 2008

    The auto news biz is abuzz with rumors of Chrysler’s endgame. Even a quick scan reveals that there are more potential scenarios and pitfalls than Operation Eagle Claw, America’s ill-fated attempt to rescue its hostages from Iran. Cerberus trades Chrysler to GM for GM’s remaining share of GMAC. Chrysler sells Jeep to Renault and the rest to GM. Chrysler parts out the company and THEN declares Chapter 11. But no matter how this plays out, foot soldiers will be sacrificed, the American auto industry will remain bound and gagged and the generals will get off Scott free.

    Let’s start with what we know. Cerberus never intended to run Chrysler as an automaker. As Ken Elias pointed-out in his GM Death Watch, right from the git-go, the automaker’s most recent owners have starved Chrysler of all the investment necessary to run Chrysler as a going concern. In that sense, they lied to union workers, white collar employees, suppliers, dealers and customers. And the media bought their lies like a teenager purchasing a pack of condom with a knowing cock tease by his side. Hey baby, are you into EVs?

    Now that Cerberus has been unmasked by the rest of the media (TTAC called the finance company’s play a strip and flip even before the sale was complete), we also know that Cerberus wants the Hell out of Chrysler, and soon. When Chrysler CEO Bob Nardelli famously pronounced that his employer was “operationally bankrupt,” he wasn’t kidding. The automaker’s truck business is dead, their car business is deader and the finance part of the program is the deaderer (apologies to Andrew). There is no there, there; and the red ink won’t stop spurting until Chrysler bleeds out.

    So, assuming Cerberus hates carmaking and wants out now, what to do, what to do? There are three likely scenarios.

    First, sell it to a sucker. I break with Mr. Elias’ view that GM will “absorb” Chrysler to ensure a prime position at the federal bailout trough. As PCH101 points out, GM is already too big to fail. In terms of public perception, the idea that GM is “healthy enough” to buy Chrysler (a dumbing-down of the concept, but there you go) would undermine its claims against the public purse. So who else? Renault? No. A Chinese automaker? Nope. In this market, no one. So fuhgeddaboutit.

    Second option: Cerberus toughs it out. It keeps Chrysler until the industry shakes out and picks-up, and then sells it to whoever is left for whatever it can get. At this point, Chrysler would need federal “assistance” to stay in the game. The fact that ChryCo offered the media some cod-electric vehicles– pitching for part of the existing $25b federal loan program– shows that the company is ready, able and willing to steal borrow money from Uncle Sam.

    I also disagree with Ken’s contention that the feds couldn’t loan bailout billions to Chrysler because it’s a private equity firm. If AIG execs can receive federal “intervention,” spend $1m on company pedicures and not be strung-up from a light pole, why should the fact that a guy who skis in Gstaad owns Chrysler make any difference to bailout boosters? As twisted as it sounds, a Chrysler bailout also sounds fair. If we give a loan to GM, why NOT Chrysler? Chrysler’s got history. “We made the feds a PROFIT the last time ‘round. And, lest we forget, Cerberus has plenty of good friends down in D.C.

    If, however, Cerberus needs or wants a right now solution to their problems, bankruptcy is it. Or Chapter 7. Either way, option three is the fastest, cleanest and, possibly, cheapest option.

    I know: I predicted a ChryCo C11 for late July. But unlike GM’s point-of-view, bankruptcy protection is ALWAYS on the table for Cerberus. Cerberus bought a controlling stake in Houston-based mortgage lender in 1998. Aegis ceased operations in August 2007. When Mervyn’s department-store chain (part-owned by Cerberus) hit the skids this summer, Cerberus pulled the plug and filed for C11. This very day, Mervyn’s filed for Chapter 7.

    So which option is Cerberus pursuing? I reckon it’s all three at the same time. The big news here: Reuters reports that Cerberus is negotiating with Daimler to buy back the German automaker’s share of the American company. ALL of these exit strategies depend on Cerberus owning 100 percent of Chrysler.

    No matter how you look at it, Chrysler is attempting to kill itself. Of course, there are some big winners in all this: JPMorgan and Citigroup (representing Cerberus) and Morgan Stanley and Evercore Partners (representing GM). The fees involved in keeping Cerberus’ options open must be astro-friggin’-nomical (and the meter’s already running). Another winner: the transplants. Chrysler’s slow bleed lets them gradually increase their share of the American without anyone noticing. How sad is that?

    http://www.thetruthaboutcars.com/chrysler-gm-merger-a-done-deal-or-not/
     

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