Cerberus Letter on GMAC and Chrysler
Submitted by
CalculatedRisk on Thu, 02/14/2008 - 6:59pm (77 comments)
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so this isn't substantial difficult already? Hmm.
Of course, none of that occurred to them beforehand.
My response "You can't polish a turd"
It's a fun letter and could be used as a drinking game. Every time they use the word "humility" or phrase "thick skin", take a shot.
By the end of the letter, you will be passed out on the floor (if you make it that far).
Best to all.
You would think Cerberus could afford to buy a decent printer and hire a proof-reader/editor somewhat familiar with good business English.
It sounds like a lot of amateurish letters written by overwrought CEOs who are preparing investors for demise. The tone totally lacks confidence. You can almost smell tears on the page.
"Hey, Billy. I've a great idea. Let's buy a bunch of companies using private money. We'll buy stuff, make a bunch of fees, hope it works out, and then were rich. Or, we'll buy stuff, make a bunch of fees, it all goes wrong, we lose our investors' money, and we'll still be rich. I love America!"
"You the man, Steve. Give me some!"
These guys started out as distressed guys - buying distressed assets at distressed prices. So much for maintaining their discipline...
The letter was a joke - if I were an LP I'd ask them what they were thinking. What idiots. I guess their still distressed guys - they just forgot the distressed prices part. Cerberus seems to have put its 3 heads up its ass in the past few years.
Imagine if GM hadn't unloaded GMAC when times were good...
(GM still owns a porition I believe)
Why didnt Snow sign this? Isn't he the "CEO" of Cerberus? Or is he just the figure head for PR?
Mercedes Benz is cutting coss big time because they still own 20% of Chrysler. Why they didnt get out completely is beyond me.
They did want it to appear to be a Snow job.
didn't
Like the snow job he pulled on the US?
Interrupt this thread for off-topic interlude:
Thursday evening NYTimes web site had a link "Typo Spurs Bad Bonds Report".
I was surprised when this turned out to be about Barry Bonds. Honest!
We now return to your regularly scheduled programming.
I don't believe what Cerberus is saying about Chrysler. Sales were down 12% YoY in January, the supplier relationship is getting worse, and the product pipeline is pretty empty. Their best hope at this point is someone willing to overpay for Jeep.
and how much are they paying these guys?
Chrysler dealers are hurting bad - according to my contacts at some large banks - 20-30% are losing significant amounts of money.
"solid blocking and tackling and reasonable execution should be enough to earn a good return"
First of all, he did NOT say blocking and tackling. Good grief. Second, define reasonable and "good return."
What a bunch of pabulum. Ick.
they're going to work "as hard as they ever have", but no harder, apparently. slackers.
It was hard coming up with the scam, ran.
welll, burp, cR's GFAme is kinda fun.
but i can't shee the typpee thingy anymore...and i .. the thingy with the ...9 whole pagesh....sheesh, tat's alotta shot's...whose turn is it...
Whew...burp...If you make me read that shhht again, i'm gonna pucnch you...yeah you and yo momma!
You wanna piesh of tghis?
Cheers,
ran-
What were they doing before? Screwing off and overpaying for junk.
Bernanke Injects Liquidity into Bonds
After reading this whole thing - let me summarize - "its not our fault, if the credit markets would just act right we would be ok, its not our fault. Also, I sure hope the media leaves us alone..."
Chrysler-Plastech spat continues: Chrysler vs. Plastech; Damned If They Do, Damned If They Don't | The Truth About Cars
Yes, I've been wondering about Jeep. Is still a viable product or is it going down as well?
rich,
So that's what it was. I wondered why such nonsense was such important news. Can't have the Chairman of the Fed injecting liquidity into ballers. T'would set a bad precedent.
Cheers,
Misean,
You crack me up.
"dream team of Bob Nardelli,.."
LMFAO!!
Keep dreaming!
Credit markets have been "house of cards" and it is collapsing now.
Layers of debts financed on top of other layers of debts and so no.
Where will we be in 12 month from now ??
Elvis,
You ain't nothin' but a hound dog...
But thanks.
Cheers,
Ah... memories. From Business Week 4/24/2006:
"Wall Street has been buzzing over how the 46-year-old Feinberg snapped up a huge financial-services company for little more than its book value from Kravis, age 62. Kravis may someday look wise for having turned his back on a deal heavily laden with risk. But losing to Cerberus has to sting [...]
Feinberg won the day in part by accepting risks that every major bank and marquee buyout firm that GM approached about the deal turned down. For starters, Cerberus will take control of more than $300 billion of leases, loans, mortgages, and insurance policies. The auto-related leases and loans could be a drag if GM's problems get worse. Feinberg also agreed to invest GMAC's aftertax earnings and dividends for five years, and not to break GMAC apart without GM's consent. In addition, he promised to continue to support loans to dealers and leases to buyers of GM autos for 10 years."
I guess they are glad they accepted the risks that every other bank and PE firm turned down. Bwahahaha!
What timing on the part of Cerberus. RFC was a voracious consumer of the hairiest subprime ever issued (check out the RASC shelf... it's a hoot). When the the market turned, they literally sat atop a mountain of the worst assets you could hold. They took in scratch & dent, were hip-deep into warehouse lending to imploded lenders and on and on.
And their timing could not have been any worse.
But of course there is a silver-lining as noted in their helpful letter, "Management fees are expensed as incurred and tend to be heavily front-end loaded"
See investors? We're going to be OK, don't worry about us. What a bunch of ass-clowns.
Thread music: Oh Lord, won't you buy me a Mercedez Benz / Janis Joplin
YouTube
- Janis Joplin - Mercedes Benz
Anonymous | Homepage | 02.14.08 - 11:17 pm |
"Layers of debts financed on top of other layers of debts and so no."
We have an inverted debt pyramid. It is collapsing. Get out while you can, it is not going to get better.
Cheers,
Economic Indicators.gov
Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.
Economic Indicators.gov is brought to you by the Economics and Statistics Administration at the U.S. Department of Commerce. Our mission is to provide timely access to the daily releases of key economic indicators from the Bureau of Economic Analysis and the U.S. Census Bureau.
"But of course there is a silver-lining as noted in their helpful letter, "Management fees are expensed as incurred and tend to be heavily front-end loaded"
See investors? We're going to be OK, don't worry about us. What a bunch of ass-clowns."
The only rule of investment fund management. Protect yourself first and then the investors.
I hope Toyota comes out with a one ton pickup with a diesel soon. I want to unload our two Rams asap. The Cummins is bullet proof but it is surrounded by Chrysler steel and fiddly parts.
The GM diesel pick up has a great Japanese engine but it is surrounded by GM Steel and fiddly parts. Don't know much about Ford's diesel.
All my friends with GM diesels are happy with them but my feeling is all American car makers are going BK.
ight all
Cheers,
Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.
WTF ?!?
somebody hacked into that site!
A bit early for April 1st!
Apparently at the end of 3Q 2006, GMAC had $57 billion in subprime whole loans "held for investment". I'm sure some of that has run off by now, but lordy, lordy: try marking the remaining pools to market these days.
Could they get $.80 - $.75 for their performing paper? Maybe. Think of the haircut on $50 big ones will ya?
Honestly, if the "held for investment" portfolio was properly marked, would Cerberus' investment be wiped out?
From Mortgage Insider:
Date \tJumbo \tConf. \tGap
6-Dec-07 \t6.757 \t5.955 \t0.802
13-Dec-07 \t6.884 \t6.005 \t0.879
20-Dec-07 \t6.970 \t6.045 \t0.925
27-Dec-07 \t6.922 \t6.070 \t0.852
3-Jan-08 \t6.919 \t6.015 \t0.904
10-Jan-08 \t6.788 \t5.867 \t0.921
17-Jan-08 \t6.725 \t5.796 \t0.929
24-Jan-08 \t6.636 \t5.694 \t0.942
31-Jan-08 \t6.663 \t5.612 \t1.051
7-Feb-08 \t6.605 \t5.594 \t1.011
14-Feb-08 \t6.715 \t5.683 \t1.032
Bottom line: Jumbo mortgage rates haven't edged down compared to the first week of december! The spread from jumbo to conforming just eats any fed interest rate drops, belches, and asks for more. Currently over 100 basis points.
So despite all the headlines, the buyer with a 500k financing deficit has not yet got their hands on any of the money fluttering down from the sky.
With all due respect, the Calculated Risk is the larger credit concerns whereby the fixed income market is shut down. This GMAC scenario is but a pussed-up pimple on the rash laden flesh of the credit markets (nice analogy huh?).
For munis and things like the NY Port Authority to have no takers and for the few that did paying 20% says to me a systemic breakdown in confidence and assessment and a complete lack of available cash-ol-a.
I fully expect that those that have floated paper to cover credit cards are next..."Transaction Denied" as consumers try to scan their next credit card purchase.
Got word today that a huge CRE project in Calgary Alberta was shut down - pre-sales were 32%, concrete poured, materials ordered. Shut down! Completly shut down and no word on re-start. And this in a local economy that is flush with petrodollars. A bank pulled the plug - no more credit.. and well the rest is history
While I think it is okay to pop a bubble the seveeeer timing and direct direction has me concerned. The M3 curve goes parabolic and still there is binding grit.
Barley,
I saw the same thing earlier this evening and thought it was a good thing this diverse economy of ours won't go into recession.
I mean its a sunny day the tide is way out picking up crabs is easy. Whats that shadow oh F$((
I'm looking through Emporis, and there is a 38-story building in Calgary called Jamieson Place that was to finish construction next year. Emporis is usually somewhat slow to update this kind of stuff, but I'm guessing this was the building that is being canceled, which would indeed be pretty big.
Jamieson Place, Calgary | Emporis.com
Now the hellhounds are baying a different tune about the need for thick skinned humility in the face of significant market risk.
I find the letter quite amateurish for a multi-billion dollar fund. Sounds like they don't have a clue about what they're doing.
"Hazard writes:
Yes, I've been wondering about Jeep. Is still a viable product or is it going down as well?"
I work for a large auto group, and our Chrysler Jeep dealer has one product that is moving and that's the Wrangler 4-door everything else is far to high priced when looking at comparable vehicles.
I find the letter quite amateurish for a multi-billion dollar fund.
Maybe they started cost cutting with the PR department.
I've noticed a rash of "amateurish" things recently. I just heard Condi Rice stammering through a statement on Putin's sabre rattling. I hear Paulson stuttering through a presentation on how he's trying to fix our economy, and then there's pretty much anything that GW utters.
I just am not getting a warm feeling of confidence from our leadership. Their apparent lack of confidence about what the next word they want to say is distracting me from what ever it is that they are trying to say. Same goes for bloviation in corporate statements.
Frozen credit markets!!
Michigan today suspended a state loan program for 8,500 students, and the Port Authority of New York and New Jersey is facing a four-fold jump in interest rates on one of its loans. Both are signs of a new bond-market crisis that is threatening to hurt other cities and states if left unchecked.
Michigans MI-LOAN, one of several student-loan programs run by the state, is among the first victims of the credit crunch. Authorities suspended the $68 million program, which made credit available for students whose federal loans arent enough to cover their college tuition.
Michigan couldnt find takers of bonds needed to raise money for next falls student loans, said Tom Saxton, a Michigan deputy state treasurer, in a telephone interview. He said student loans are already tough to finance. In normal times, the state could persuade investors to buy the bonds by offering insurance. But now, Saxton said, nobody wants bonds with insurance
Similarly, Montana was unable to sell $300 million of bonds for student loans this week. The Wall Street Journal reported that Mississippi also had a failed auction.
The Port Authority of New York and New Jersey, which operates the regions airports and runs the World Trade Center, got a rude shock this week when it tried to get buyers for a special type of bond whose rate is set at frequent auctions. They found no takers
Hope for the best and prepare for the worst.
Oh, I almost forgot. CR, you slay me with your use of the word "interesting." You and Conjure Bag are the only two individuals I'm aware of who would probably call the second coming of Christ "interesting."
Cerberus does NOT have the horsepower to pull these deals off - even in better times. Look closely at John Snow's record at CSX. He did almost nothing and was paid a truly excessive amount of compensation. He is a Jack Welsh wannbe - he always sucked up to Nardelli when Nardelli was "running" GE Locomotive. We all know how Nardelli ran Home Depot into the ground and was paid 100's of millions to do so. The two of them couldn't run a Chyrsler dealership let alone the whole corporation. Nardelli can draw charts while Snow gives speeches - and Feinberg and Richter can count their fees.
The investment reflects a negative outlook on the prospects for the U.S. economy that has been building in Robertson for years. He believes that the Federal Reserve will continue to flood the economy with money, weakening the currency and ultimately causing the Japanese and Chinese central banks to stop purchasing Treasuries, which will drive the price of 10-year bonds down. It's a macroeconomic hedging strategy that has already paid off handsomely
Can someone tell me the outcome if this scenario works out?
Tiger's Julian Robertson roars again - Jan. 28, 2008
GMAC is going to be fine, and GM is not going bankrupt...
Gm is a great investment at this price.
krish,
If the Fed "floods the economy with money", and the US continues to run gigantic trade deficits and auction off hundreds of billions in Treasuries to finance the public debt each year, you'd probably see the following:
1) Lots of upward pricing pressure on commodities (i.e., the supply of money grows faster than does the supply of hard assets). The result is systemic inflation as these prices for raw inputs find their way into everything you consume.
2) The dollar tanks vs. other currencies. Imports get mighty pricy (more inflation) but our products seem cheap to other countries. Unfortunately, we've shed a lot of manufacturing capacity in the US so we can't take advantage of a debased currency like we used to.
3) To incent foreigners to subsidize our trade and budget deficits due to a declining dollar, we have raise intererst rates on US dollar denominated fixed-income vehicles. Think back to 1980 when T-bills hit 15.6% The prime lending rate was 20.5% in 1981.
Get ready for a 1980-81 flashback.
Sounds like Steve and Bill could use a hug. At least one of the permabulls needs to get on the horn and talk Steve and Bill off the ledge. Where are the trolls when the economy needs them?
Barry Ritholtz seems to think we're entering a liquidity trap scenario from the following quotes he chose.
The Big Picture
Investor guy has it right.
Nerd Zone ahead
CDIAC Alphabetical List of All Publications
It's that time of year again and my IRA is approaching maturity and it's time to renew. The lower interest rates suck.
My evening reading was the New Yorker's James Stewart on Stephen Schwarzmann.
He narrowly avoids the toasty bits, but some (many?) here can fill in the blanks.
Profiles: The Birthday Party : The New Yorker
Citi says that UBS may need up to $18 billion in writedowns due to exposure to subprime and "other" debt
Yahoo! 404 - Page Not Found
So they don't visit the confessional, but another bank (deep in writedowns!) lets us know. Hmmm.
It is no longer necessary to read the body of text in CR any more.
Until the headlines change this thing is gonna go where it is going
Something has to change or it will go where it is going.
The destination is known and very unpleasant.
I have a home on a far away pacific island. Providing i can make my way there i will be safe.
I hope you have all made some plans
Krugman on the Crisis:
OP-ED COLUMNIST; A Crisis of Faith - NY Times
Citigroup Halts Withdrawls from Hedge Fund
Citigroup halts withdrawals from hedge fund: report - MarketWatch
Investors' Funds in Auction-Rate Securities Frozen:
Investors' funds in auction-rate securities frozen - The New York Times
The flight to cash continues . . .
Do you have any recommendations for CDs? The best i can get is BOA at 3.3% for 4 months.
Thanks.
Downey Savings reported its 13 month data today, and - surprise, surprise - its NPAs are up another 2% in one month.
Like its option ARM brethren, all the king's horses and all the king's men...
REBear,
Go here for highest CD rates in the nation, by maturity, updated daily.
Highest rates and yields on bank certificates of deposit (CDs) updated daily by Money-Rates.com
Off Topic:
Downey annnounced their Non Performing Assets have increased to 9.14%.
This is the NPA's over the last 4 months, going back in time starting on Jan 31, 2008.
9.14% 7.77% 5.77% 3.86%
They're working extra hard to rework their mortgages, but it's clearly not enough.
Not a good trend.
Expired
FLIP THAT HOUSE has been cancelled and replaced with HOUSE SWAP...
http://finance.yahoo.com/real-estate/article/104429/I'll-Buy-Your-House-If-You-Buy-Mine
Goats and chickens not included
RE Bear,
Fidelity MM (FDRXX) is paying 3.86%. The spot rate has been above competing CD rates for maturities 1 year or less for more than a year now.
"GMAC could run into substantial difficulty.
Understatements of that magnitude don't come along that often.
"It has not escaped our notice that the specific pairing we have postulated immediately suggests a possible copying mechanism for the genetic material."
Morgan W writes:
"Hazard writes:
Yes, I've been wondering about Jeep. Is still a viable product or is it going down as well?"
I work for a large auto group, and our Chrysler Jeep dealer has one product that is moving and that's the Wrangler 4-door everything else is far to high priced when looking at comparable vehicles.
Morgan W | 02.15.08 - 12:29 am | #
Just got done taking delivery on one of these. Excellant build quality and it seems the minute someone complains about a flaw, they are fixing it. Nice turn around.
Now then, the JK (eg 4 door wrangler) had a 3-10 month backlog because demand is 3x forecast. In Jan, they froze all dealer orders being built in Toledo to build customer ordered JKs. Not sure if it is for customer sat or cash flow, but I was happy to get my order delivered in 3 weeks.
The other Jeep models have crazy discounts, so I guess they are not selling well. Too bad, as the new Liberty is not bad for small suv.
gomer
Understatements of that magnitude don't come along that often.
"It has not escaped our notice that the specific pairing we have postulated immediately suggests a possible copying mechanism for the genetic material."
1953-2008 or say about every half century, right?
Looks like "Fluffy" will need to be taken to the vet to be put down. Can't even say she will go to doggie heavan since she guards the gates of hell.
I love how at one point in the letter it says they don't know what will happen in the future because they "are not macroeconomists."
Remind anybody of the Harper Magazine article about "Negative Capabilty" of GW Bush?
Negative capability (Harper's Magazine)
The following assertions were collected from public statements made by George W. Bush and his official spokesmen since 1997.
The President of the United States is not a fact-checker.
Im not a statistician.
Im not a numbers-cruncher.
Im not one of these bean counters.
Im not very analytical.
Im not a precision guy.
Im not a lawyer.
Im not a doctor.
The President is not an economist.
Im not a stockbroker or a stock-picker.....