And Now, A Patriotic Cerberus

The New York Times published a fascinating piece Sunday about Chrysler’s acquisition by Cerberus, and its main protagonist – Steven Feinberg (see For Private Equity, A Very Public Disaster). Louise Story was somehow able to secure an interview with Steven Feinberg, the notoriously reclusive Chief of Cerberus. In commenting on the interview, Louise points out:

…How he [Feinberg] and his private equity firm, Cerberus Capital Management, choose to describe their journey with Chrysler is a delicate matter. If he says he should have shelled out more money to help Chrysler, he could face the ire of investors who have already suffered heavy losses on his gambit. If he says he should have simply dumped Chrysler’s auto arm, while clinging to its more promising finance unit, he could be accused of caring more about his wallet than he did about Chrysler’s workers and the automaker’s role in the economy.

MY COMMENT: My knee-jerk reaction after reading that was, “OK, so if he can’t be candid during the interview, what good is the interview?” But the article delivered. In fact, if you go into the article knowing that an interested party is engaging in retrospective rationalization (a behavioral attributional bias) when speaking about a personal failure, it’s not that hard to read between the lines.

But back to the article:

For Steve Feinberg, the onetime owner of Chrysler, the past year has been a crawl toward defeat. He lost billions of dollars. He lost prestige. He lost his privacy. And he ended up a ward and supplicant of the federal government.

But, even now, Mr. Feinberg…is hard-pressed to pinpoint many mistakes.

MY COMMENT: Really now?

“I don’t know what we could have done differently,”…“Maybe what we should have done was not bought it.”

MY COMMENT: Gee, ya think?

Cerberus bought a business with little future. The automobile industry has been plagued by mass overcapacity and has been in decline for decades. As the weakest of the American manufacturers and the one of the weakest global players, how could the expected outcome have been anything other than failure for Chrysler?

Granted, Cerberus didn’t really want Chrysler. They wanted Chrysler’s financing arm. But the fact remains that the financing arm came with an enormous, politically-connected sinkhole that was backed by an incredibly powerful union.

But the lucky thing is that patriotism was guiding Mr. Feinberg:

“Steve saw this as a huge patriotic opportunity, in addition to a great investment,” says Robert L. Nardelli, the former Home Depot chief executive whom Cerberus installed at Chrysler’s helm.

…He [Feinberg] was authentically excited by the prospect of reviving an American corporate icon…

…Mr. Feinberg and his colleagues at Cerberus maintain to this day that their time at Chrysler was, in part, a reflection of their patriotism…saying his experience at Chrysler has left him feeling like a good citizen.

MY COMMENT: I don’t know about you, but now that I know that patriotism was an underlying motivation makes me feel so much better about the stripping-down of Chrysler’s assets. So as you see, it was good for us all along.

Mr. Feinberg says that…business restructurings are, unfortunately, often brutal affairs. “It’s demoralizing when things go down,” he says. “But that’s a turnaround, you know. Some guys make it; some guys don’t want to deal with it. This was the most difficult environment. You couldn’t think of a worse storm for an employee to have to live through.”

MY COMMENT: Hey, a bit of candor. It is true. Turnarounds are brutal for employees. But frankly, I would have been better with the following explanation: Cerberus bought Chrysler for profit-seeking motives. They thought they might be able to turn around a firm that was most likely to fail anyway. There was a bit of hubris mixed in. They weren’t able to pull off a miracle. The end.

But to veil it in patriotism is disingenuous. After all, Cerberus is named after the mythical three-headed dog that guards the gates of Hell (see also, A Benevolent Cerberus?).

Disclosure: No positions