The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

FIAT Deal Exposes Some Dirt

Jan 26, 2009

The Italian automaker FIAT splashed into headlines, taking a 35% stake in Chrysler. A new episode in the Chrysler soap opera! Another unexpected deal, cut behind the scenes, secretly in the works for months.

And what else is in secret? Up until now, Cerberus Capital Management, owner and manipulator of Chrysler, has hidden what it does, and keeps everyone off balance, guessing.

But the FIAT deal revealed some new things. From the start, although Cerberus denies it, everyone knew that they bought Chrysler from Daimler merely to “strip and flip” it, to cannibalize it before flipping the husk to the next high-rolling gambler.

The early signs of cannibalization were indirect. Bob Nardelli, infamous executive fired from Home Depot with a 210-million-dollar golden parachute, was installed as chairman, instead of promoting experienced auto executives. Five top-level executives left. Product development slowed. Engineering staff was laid off, decimated. Various deals with Chinese and Japanese carmakers were done – and undone – and re-done. Chrysler Financial – highly profitable before the credit crunch – was sliced off as a separate company.

Another Cerberus purchase – Mervyn’s – filed for bankruptcy and revealed a Cerberus strategy: at purchase, Cerberus split Mervyn’s into a real estate unit and a retail-sales unit. The retail-sales unit was loaded up with debt and with outrageous “rental” payments to the real estate unit. Eventually the retail unit was drained dry and closed – while the real estate unit still owns the properties and escaped without liability for the debts! Investors in the retail unit were fleeced.

As the FIAT deal progressed, more information leaked out about Cerberus’s Chrysler dealings. They used the same strategy as with Mervyn’s! Chrysler headquarters – the country’s “second largest office complex under one roof,” after the Pentagon – is now owned by Cerberus and leased out to Chrysler. Chrysler plants are mortgaged, that is, loaded with all the debt Cerberus ran up on the original deal.

It’s clear that only the economic meltdown, the credit crisis, stalled Cerberus’s original plans. It’s hard to flip a property when no one has enough credit to buy it! With the crisis, Chrysler has so little value at the moment, that FIAT (privately owned by the Agnelli family of Italy) could basically barter some small car engineering for 35% of the whole company – with an option to take 55%, after the government bailout.

But wait! Where’d the value of Chrysler go? The plants are still there, stuffed with high-tech equipment. Vehicles can still be built. Workers are ready and able to build them. What happened?

In typical vulture capitalist fashion, Cerberus structured the entire deal to enrich Cerberus’ own investors – by fleecing Chrysler, and its investors, and its workers.