Cerberus Dragged Reluctantly into Spotlight by Chrysler, GMAC Stakes

Cerberus Dragged Reluctantly into Spotlight by Chrysler, GMAC Stakes

If Stephen Feinberg, the ultra-secretive founder of Cerberus Capital Management, which owns 80 percent of Chrysler and 51 percent of GMAC, hates the public spotlight now, he’s seen nothing like what he will if the automaker goes under, according to a column in Tuesday’s New York Times .

“If Chrysler, which has $18 billion in pension and health care liabilities for at least the next two years, winds up sinking into bankruptcy, it would be a watershed event,” wrote Andrew Ross Sorkin in the paper’s Dealbook column. “Such a failure might take down the entire private-equity industry — everyone in the business, bystander or not, would be tarred. It would be on the 6 o’clock news. Mr. Feinberg would be hauled in front of Congress. It would be considered a national crime. Remember the outcry when Kohlberg Kravis Roberts bought RJR Nabisco for $25 billion back in the 1980s? That was just a dress rehearsal.”

The New York Times column comes on the heels of Cerberus issuing a statement Friday insisting Chrysler is not only on track with its recovery plan but is exceeding the plan's targets, and that GMAC has strong long-term prospects.

That statement, in turn, came on the heels of a very private letter from Feinberg to stakeholders — citing significant risks for Chrysler and GMAC — going public. The letter, of course, found its way into the media after “BlackBerrying” around New York “with exclamation points in the subject line,” noted The New York Times column.

The Private Letter
The column noted Feinberg, in his private letter to stakeholders, one moment “sounded cavalier about the prospects for the companies he controls. The next, he seemed cold and ruthless.”

Feinberg was playing to his audience — his private investors — not the public, the column noted. “He tried to appear introspective and 'disciplined,' which, on Wall Street, is code for ruthless. He even tried to humanize himself: ‘We need to remain vigilant, humble, hard-working, focused and disciplined. We cannot let up for one second.' ” 

But, the column noted, citing the letter: “ 'We do not need to be heroes to earn a good return on the investment in Chrysler,' " especially as Cerberus bought Chrysler "on the cheap...'We do not need to transition the car industry or even to return Chrysler to a much stronger relative position in the U.S. car market in order to be successful.' ”

The column questions: "This makes you wonder what Robert L. Nardelli, Home   Depot’s former chief executive and $225 million man, does as chief executive of Chrysler.”

It's been noted Cerberus believes “solid blocking and tackling” will make for a good return on its investment. Chrysler is “beating our initial estimates despite a soft car market,” the letter added. Further, the letter noted, Chrysler has more than $8 billion in cash, which should enable the automaker to “fare just fine” in a normal down cycle.

Indeed, Chrysler revealed at the recently ended national dealer convention another round of blocking and tackling when it said it would eliminate more models and consolidate Chrysler, Dodge and Jeep dealers.

Still, Feinberg warned in the letter, “the investment is by no means without significant risks.”

According to the column, Feinberg seems less indifferent — and more negative — about GMAC. “GMAC is an investment about which we have significant concerns. If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty.”

GMAC recently posted a $724 million fourth-quarter loss, with its ResCap mortgage business showing a $921 million loss. General Motors retains a 49 percent stake in the business. GMAC is in the midst of a restructuring plan.

“We despise all the public attention we are getting,” Feinberg said in the letter. “We do our best to avoid the spotlight, but, unfortunately, when you do some large deals, such as Chrysler and GMAC, it is hard to avoid.”

The Public Statement
To offset "Feinberg’s cheerless outlook on the economy,” as it was described by The New York Times columnist, Cerberus said in its statement issued Friday it “has an obligation to be forthright with our investors about all possible risks and uncertainties that could impact their investment.

“Although we prepare for the worst-case scenario,” the company said, “it doesn’t mean that it will certainly happen: in fact, we are committed to doing everything in our control so that it doesn’t.”

“We continue to be extremely enthusiastic about our investment in Chrysler,”  the statement said.

Still, that's a far cry from the loftier, even heroic spoutings of John Snow, the   former Treasury secretary who is the public face of Cerberus, in a speech to the Detroit Economic Club in July — the month before Cerberus took the helm of the auto company. He said then Cerberus offers “perhaps the last, best hope of turning around the auto industry and basic manufacturing in the U.S.”

Photos by Chrysler

1 — Tom LaSorda, Chrysler vice chairman and president, left; Ron Gettelfinger, UAW president; and Bob Nardelli, newly appointed chairman and CEO, flip an oversized light switch to indicate The New Chrysler is open for business during an employee event at the company’s headquarters Aug. 6, 2007. More than 8,000 employees watched as a banner was unfurled telling the world to “Get Ready for the Next 100 Years."

2 — New Chrysler CEO Bob Nardelli.

3 — Cerberus' John Snow, center, flanked by then–Chrysler CEO Tom LaSorda, left, and Daimler CEO Dieter Zetsche, announce Cerberus' 80 percent stake in Chrysler; Daimler retained about 20 percent.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.