Chrysler going to the dog

Last January I discussed a fundamental shift of American business away from publicly held corporations.

Last February 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.

Shortly thereafter speculation focused on Chrysler.

And now the WSJ reports that Cerberus is poised to buy control of Chrysler.  If the deal goes through, Chrysler would be controlled by a firm that, as the WSJ notes, didn't even have a Web site until a year ago, and today says very little about itself. This is, indeed, private equity.

In March I observed:

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.

The WSJ article linked above says that LaSorda would continue to run Chrysler and that:

the groups vying for Chrysler would seek a provision tying an acquisition to certain concessions by the UAW. * * * If UAW President Ron Gettelfinger refuses to give in on concessions as he did last year with Chrysler, any agreement with a buyer could fall through. But that could put thousands more union jobs at risk because it would leave Chrysler little choice but to cut its work force deeply. * * *

The article adds:

A new owner would likely take more drastic action to weed out some of Chrysler's 3,700 dealers, with some proposals calling for a 30% reduction in the dealer network. . . .

So Cerberus is bringing a lot of money to the table, in return for which it is demanding cooperation. One way to characterize this is that private equity is bidding to clean up contracting problems that are threatening to send an otherwise viable business down the tubes.