Nardelli, Cerberus Defendeth Too Much?
December 28, 2007

By Bill Visnic

After issuing a statement just before the holidays saying recent media characterizations of the financial situation at Chrysler LLC “painted an inaccurate picture” of the company’s fiscal health, media and analyst tongues are wagging with suspicion that the company’s hedge-fund owner, Cerberus Capital Management L.P., is scrambling to salvage its car-company investment.

Cerberus, which owns 80.1 percent of Chrysler and typically is closed-mouthed in its dealings with the media, hastened to back up Chairman and CEO Bob Nardelli when The Wall Street Journal reported Nardelli recently told some Chrysler employees the company was “operationally” bankrupt.

At great length, Chrysler’s statement reassures that the company is financially sound, although the repetitiveness of several passages emits more than just an air of desperation. Twice, the company takes pains to use the statement that Chrysler is “meeting -– and in many cases, exceeding” its financial targets heading into 2008.

The company that famously has little use for media coverage suddenly was worried the press reports “are misleading and could leave the wrong impression in the minds of investors and other interested parties.” The statement also twice insists Cerberus’ commitment to Chrysler is “unwavering.”

Desperate for Cash?

But recent moves at Chrysler, not to mention other ventures at Cerberus, point to a company and ownership that seems desperate to improve cash flow –- and fuels ongoing speculation that Cerberus may not have understood, nor have the stomach to endure, the kind of protracted cash burn likely required to set Chrysler straight.

In November, Chrysler announced it would cut an additional 11,000 jobs in the U.S., a stinging and unexpected additional reduction when added to the 13,000 jobs the company already had planned to shed as part of its restructuring.

Then earlier this month, the Detroit Free Press reported that Chrysler rescinded planned buyouts of several hundred salaried designers represented by the United Auto Workers Union.

Moreover, Nardelli confirmed that the company is seeking to sell real estate and factories in order to raise cash. He told The Wall Street Journal the strategy is “good business,” but some of the deals appear to be driven more by cash-flow angst than any desire to further sound business policies.

Do They Understand Chrysler?

The most perplexing move in the drive for cash is the listing of Chrysler’s Plymouth Road Office Complex –- better known as Jeep/Truck Engineering –- on the real estate market for $10.5 million. The PROC site, on the outskirts of Detroit, is a revered part of Chrysler history and many working there have immense emotional attachment to the facility. When former owner Daimler AG tried to shut the site and move its workers to Chrysler’s headquarters 20 miles north in Auburn Hills, there was all but open revolt until company officials relented.

It seems clear those currently calling the shots either do not know –- or do not care about –- the PROC’s importance to company morale. To a hedge-fund ownership that on any given day might have billions of dollars in play, what difference can the $10 million from selling the beloved PROC make, much less delaying the buyouts of a couple hundred workers -– unless Chrysler’s cash burn already is untenable?

And just this week, Cerberus paid a $100 million termination fee to United Rentals Inc. after tussling in court to dissolve the $4 billion-plus deal to buy URI that Cerberus had put together in headier days.

All Is Well?

Nardelli seems to dispel the notion there could be a cash flow issue by mentioning some $10 billion “investors have entrusted us with.” But In July and again in November, Cerberus had to postpone the sale of billions in debt to fund the Chrysler purchase when no buyers emerged –- and the environment for securitizing such large debt has not improved. The $4 billion Cerberus pledged to invest in Chrysler’s operations (and an additional $1 billion in Chrysler Financial) presumably is to come from this yet-unsold financing.

Not only are the hasty, overwrought financial exhortations from Nardelli and Cerberus suspiciously uncharacteristic of the company’s media-handling “style” –- just weeks before the statement was issued, Jason Vines, Chrysler’s experienced and credible vice president of public relations burned rubber away from the building –- the statement’s assurances ring hollow against the seemingly cash-strained environment surrounding Chrysler and its majority owner.

For a Chrysler hastening to sell properties to dredge up a million here and $10 million there, and its majority owners still on the hook for the billions in debt dedicated to fund its high-flying deal, one is left to wonder about the sincerity of the company’s “stay the course” message in light of the further $8.8 billion committed to the Voluntary Employee Benefit Association that absorbs much of the company’s labor legacy costs.

That bill is due by 2010. It will be intriguing to see if Cerberus is around to pay it.

Posted by Michelle Krebs at 9:21 AM under Analysis , Business , Chrysler , Commentary , Companies | Comments (1) | digg this | Seed Newsvine