This lengthy WSJ article on how Chrysler got into this mess is pretty informative. In some respects, it’s just another story of how private equity execs were geniuses when credit was cheap, but became dumb when they actually had to come up with ways to run the businesses that they’d bought. The article also includes some gems that require translation (all emphases mine):
By the mid-90s, it was one of the most profitable car makers in the world, with its strong minivan sales and its Jeep brand benefiting from the growing U.S. love affair with SUVs. But management was under pressure, most visibly from billionaire shareholder Kirk Kerkorian, to deliver more value.
By “deliver more value,” they meant, “sell to a bigger company so we can get our shares bought out.”
When the deal was announced in May 2007, Cerberus founder Stephen A. Feinberg went to the company’s sprawling headquarters to meet its top management. He wore an American-flag lapel pin and he told his audience of about 300 executives that he drove an American-made pickup truck. People who attended the meeting say he said he wanted to save this icon of American industry, not to bleed it of assets and value.
By “not to bleed it of assets and value,” he meant, “to bleed it of assets and value.”
Under the terms of the deal, Daimler essentially gave the company — it was basically debt- and cash-free — to Cerberus, with the latter agreeing to invest $5.4 billion into the car company.
By “agreeing to invest,” they meant, “mortgaging the assets they’d just been handed, so they could load the company with debt,” not anything like, “put up their own money to run the company they ‘bought’.”
By then, Cerberus was seeking a way to hand off the car company to a partner.
Read: “dump off the car company on a sucker.” And maybe “bleed it of assets and value.”
By November, Chrysler’s sales were in free fall. Chrysler Financial was so short of funds that it practically stopped approving loans altogether, leaving many dealers with no way to get financing to those customers who were ready to buy, people familiar with the matter said.
Inside Cerberus’s Manhattan offices, the firm’s top officials realized an auto-financing business was profitable only if it’s connected with a healthy car company. “We had this stupid illusion that the finance company could have value on its own,” said one person familiar with Cerberus’s thinking. “We were wrong.”
You don’t really need translation for this one, but it’s nice to hear someone actually say, “We made a huge mistake.”
But my favorite nugget from this article is the realization that Chrysler was going to be owned by Thomas Pynchon:
[Cerberus founder Mr. Feinberg] also met with union boss Mr. Gettelfinger. Although Mr. Feinberg is famously camera-shy, he allowed a Chrysler photographer to shoot him and the union boss together, a person familiar with the matter said. The photographer was instructed to make two prints of the shot — one for each subject — and then to permanently erase the digital files, this person said.
I have no translation for this. It’s just flat-out and delightfully weird. It’s like when I read the intro to the first volume of Robert Caro’s biography of Lyndon Johnson and discovered that LBJ hunted down copies of his college yearbook so he could excise his nickname and other comments about himself from the record. (Did you even know People Magazine keeps an online archive?)