Commentary Magazine


As Goes Cerberus, So Goes GM?

The New York Times editors are ready to throw Chrysler — actually Cerberus (the equity fund that owns the car company) — overboard. They observe that Chrysler is seeking over $5B more (without much proof its done any hard work to make itself viable) and question why those equity fund managers shouldn’t kick in more of their own cash to save the car company. The editors write:

Chrysler said the only reason it was back asking for more money so soon was that the car market was worse than it had expected two months ago.

This cavalier approach to the public purse raises a very big question. If Chrysler is really on track for a turnaround and all it needs is some financing to get over a bad patch in sales and debt markets, why doesn’t Cerberus Capital Management, which owns 80 percent of the company, put up the money itself? Why should taxpayers have to take the risk? That’s what private equity funds like Cerberus are supposed to do.

But many of the Times‘s objections to Cerberus (e.g. there aren’t as many jobs at risk now, bankruptcy wouldn’t necessarily mean liquidation) are equally applicable to GM. After all, GM’s bondholders are complaining that GM really hasn’t made the needed adjustments to become viable. And there is plenty of reason to believe a pre-packaged bankruptcy would not lead to the dissolution of GM.

It would be a step in the right direction to give Cerberus the message that the taxpayers have had quite enough of subsidizing atrocious management and excessively lucrative union deals. But once we acknowledge that move makes sense, there is less reason to object to a similar course of action for GM. When you survey the things taxpayers are being asked to pay for these days (e.g. stimulus pork, their neighbor’s underwater mortgages), propping up GM seems to be one of the least justifiable. And considering the competition for misuse of taxpayers’ money, that’s saying something.

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