Word: cerberus
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General Motors is getting an even bigger boost. After GM collected $9.4 billion in federal loans last month, its finance arm GMAC, which GM jointly owns with Cerberus Capital LLC, got a Treasury Dept loan of $6 billion. GMAC has been hammered by both the sharp decline in sales of GM vehicles, which it finances, and steep losses in its mortgage portfolio over the past year. (Read "Is This Detroit's Last Winter...
...Cerberus insists it is willing to stand behind the troubled automaker, but will that be enough? "Chrysler as we know it will cease to exist very soon," Kimberly Rodriguez, principal of the management consulting group Grant Thornton of Southfield, Mi., has flatly predicted...
...part of the Federal Reserve deal, both GM and Cerberus will reduce their stakes in GMAC, a company decimated by the crisis in residential loans. Although created originally to finance GM's car sales, GMAC also got into residential mortgages, including the subprime variety. Result: GMAC has lost $8 billion over the past two years. Cerberus will distribute shares to its investors, thereby reducing its voting stake to 14.9% and its overall equity stake to 33%. GM will transfer some of its shares to a trust, which will sell off the stock over the next three years...
...blue for Chrysler, Cerberus' other problem child. Though the billions in TARP aid President Bush authorized for Chrysler and GM will buy Chrysler some time, there are difficult issues ahead. Unless labor costs can be brought down to parity with the foreign transplants, and without the restructuring of Chrysler's debt, the company cannot be restored to long-term health and the government loan will be unlikely to be fully repaid. (Read about GM's, Ford's and Chrysler's bailout plans...
Chrysler also eliminated 25% of its salaried- employee positions on the day before Thanksgiving, and plans to press ahead with demands for more cuts from the United Auto Workers. Cerberus has agreed to utilize the first $2 billion of proceeds from Chrysler Financial to backstop the loan allocated to Chrysler automotive...