Of the Big Three of American auto, Chrysler's case is somewhat different from General Motors and Ford in that it is privately owned. If private-equity owner Cerberus won't bail out the beleaguered automaker, why should the government? - this question is at the centre of discussions on the administrative bailout being debated by US legislators.
Over the recent past, Washington lawmakers have lashed out at Chrysler's majority owner, Cerberus Capital Management LP, for not explaining why it can' infuse more of its own cash into Chrysler, rather than take federal assistance. Republican Senator Chuck Grassley from Iowa said he would oppose a Chrysler rescue until Cerberus could explain why it couldn't provide the $8 billion necessary to keep Chrysler afloat.
"Congress should demand an accounting of Cerberus' assets and why those assets cannot be used to bail out Chrysler," wrote Senator Grassley in a letter sent to congressional leaders. "If Congress does award taxpayer funds to Chrysler, it must ensure that Cerberus and its other investors are not able to access those funds."
The pressure from Washington lawmakers has put Cerberus in an uncomfortable spotlight. The New York firm, started in 1992, came into prominence as a distressed-bond investor but expanded into a buyer of entire companies. Once it struck deals to buy GMAC in 2006 and Chrysler a year later, the firm has raised its public profile ever so slightly by hiring former US treasury secretary John Snow and former vice president Dan Quayle.
At the time, executives said one of the benefits of being privately held is that Chrysler does not have to make its finances public. Publicly traded companies, such as General Motors and Ford., must regularly file financial information with federal regulators.
GM and Chrysler warned Congress that their companies are in danger of reaching minimum levels of cash needed to sustain operations. Chrysler is seeking a $7-billion bridge loan while GM is seeking a $12-billion loan and a $6-billion line of credit.
Whether Cerberus can pump money into Chrysler is more than a political calculation. Cerberus, which manages $27 billion across numerous funds, has contractual limits with investors about how much capital it can allocate to one deal - less than 5 per cent. And if Cerberus decided to exceed its position limits and invest more money in Chrysler, it could be viewed by the firm's investors as throwing good money after bad.
Though it controls Chrysler, the firm has limited financial exposure to the automaker. When Cerberus led a $7.4 billion investment for an 80.1 per cent stake in 2007, it sold off at least $6 billion of that to co-investors, from Citigroup Inc. to hedge fund Third Point LLC to private-equity shop Sun Capital Partners Inc. This past July, Cerberus and its co-investors also lent $2 billion to Chrysler.
Cerberus says it shouldn't be viewed any differently from competitors because investors are the same, including public pension plans for organized labor, teachers and city employees. "Chrysler's shareholders are no different than the shareholders of General Motors and Ford," Cerberus said, adding that that in July "Chrysler's shareholders invested an additional $2 billion in the form of loans" to the company.
Cerberus also said that it has promised government officials that it "would contractually agree to forgo any profits that could be earned, directly or indirectly, relative to Chrysler as a result of any financing that the government may choose to provide" and its "investor consortium will accept dilution of their equity interests in Chrysler LLC to facilitate additional necessary concessions."