The Chrysler buyout

Things move fast. Way back in February (last month!) I speculated that

Maybe the public corporation will be replaced by the public uncorporation, giant umbrella LLCs like Fortress that manage large hedge funds that run slim little operating companies, like the future versions of GM and Ford.

Then along came news of a possible private equity deal for Chrysler.

Today's WSJ gives the state of play, involving two private equity firms (Cerberus and Blackstone) and auto parts company Magna.

It's still not clear precisely what magic private equity will work here. The problem with US automakers clearly isn't the basic business (see BMW, Toyota and Honda). So it must be the managers or the unions, depending on whom you ask.  The private equity players aren't easily going to be able to dispense with either -- they need the managers' expertise, and somebody has to make the cars. But if there's money to be made, and it's just a matter of dividing the pie, I suppose it might help to have a new pie-slicer -- particularly since the alternative is burning the pie in bankruptcy. I guess we'll see soon enough.

Comments

[M. Hodak]

"It must be the managers or the unions, depending on whom you ask"

That seems to make sense, which is why it is formulated as a choice or, sometimes, as a way to spread the blame to both. When I worked for a heavily unionized company, I developed an alternative view: It's the managers BECAUSE of the unions.

My experience is that managers in unionized, public companies are observably worse than managers in either their non-union peers or unionized, private company peers. I can give assorted reasons why, but they all add up to the idea that private equity may make a difference, at least temporarily, i.e., by replacing old management with smarter people.