Executive Intelligence Review
This article appears in the May 25, 2007 issue of Executive Intelligence Review.

Cerberus Takeover of Chrysler Puts Auto Industry Deeper Into Hell

by Nancy Spannaus

The aptly named Cerberus Capital Management corporation improved its capacity to send the U.S. auto industry to hell May 14, when it announced its $7 billion takeover of the Chrysler Corporation, the third largest U.S. automaker. The Cerberus private equity fund, which is named after the legendary three-headed dog of Greek mythology which guarded the gates of Hades, has already moved in on General Motors' financial division (GMAC), the Delphi Corporation, Tower Automotive, and Collins and Aikman. Auto unionists, and long-term industry observers, are already predicting that a "bloodbath" will quickly ensue, with layoffs and sell-offs, if not total shutdowns.

In February 2005, Lyndon LaRouche warned that the financier crowd behind Vice-President Dick Cheney was intent on dismantling the U.S. auto sector. As the signs of impending bankruptcy and looting of General Motors grew, LaRouche urged the U.S. Senate and Congress to take emergency action, Franklin Delano Roosevelt-style, in order to save the vital machine-tool capacity and skilled workforce of the United States, by putting it to work rebuilding the dilapidated U.S. transport, power, and water infrastructure. Fascist financier, and Democratic Party moneybags, Felix Rohatyn moved in to counter LaRouche's plan, which initially garnered significant support. The line went out: "they" won't let the auto industry disappear.

Tragically, as well as stupidly, the leading Congressional Democrats, many of them beholden to Rohatyn or to hedge funds directly for their financing, bought the line.

More than two years later, the evidence is overwhelming that LaRouche was right. The international financial powers who run the likes of Cheney and Rohatyn, have pursued a systematic course of looting and shutting down the U.S. auto industry, starting with GM, Delphi, Ford, and other auto parts suppliers. Tens of thousands of autoworkers have already lost their jobs to "buy-outs," which have devastated communities and families, and shut down invaluable production centers. Where plants are still operating, they are now often staffed by replacement workers, paid half the wages of the unionized workforce they replaced. Many factories were literally dismantled and either blown up or sold to overseas buyers for pennies on the dollar.

LaRouche's emergency measures to save the auto sector are still available, if Congress has the guts to act—not only to enact legislation like his Emergency Recovery Act, but to clean the political saboteurs out of both the Republican and the Democratic Party—Cheney and Rohatyn, to be precise.

The Takeover

The Cerberus Capital Management buyout of Chrysler announced May 15 is likely to result in the carving up and resale of parts of Chrysler in the near future, accompanied by plant closings and accelerated layoffs above the 13,000 Chrysler has already announced, according to auto industry and union sources, and private equity analysts.

One local union official told EIR that although Chrysler is "likely to stay in the car business somewhat" under Wolfgang Bernhard (hired by Cerberus to call the shots at Chrysler), Bernhard is also the then-Daimler executive who cut the hell out of Chrysler's employment and plant structure from 1999-2001. That shrinkage plan clearly has failed—Chrysler's market worth in this deal is much less than a third of what it was in 1998—yet, Bernhard was hired again by Cerberus, apparently to repeat it.

And auto analyst David Cole told the Wall Street Journal that foreign buyers, including Chery of China, were anticipating buying up parts of Chrysler, "waiting for the private equity companies [i.e. Cerberus] to do some of the cleanup work to make Chrysler an attractive deal."

For public consumption, Chrysler's management has been putting out the line that the company does not plan to sell off any of its three brands—Dodge, Chrysler and Jeep—and that, at least in Canada, "there will be no layoffs as a result of this ownership change."

Labor on the Chopping Block

In fact, the only question is whether the big private-equity fund Cerberus will dismantle the company, or try to dismantle the United Auto Workers' (UAW) contracts, first.

UAW President Ron Gettelfinger, whose sudden endorsement of the Cerberus takeover he was publicly fighting a month earlier has dismayed many unionists, said in a May 14 press conference that he had been assured by Daimler-Chrysler management that Cerberus would not dismantle the company. He had not, however, talked to Cerberus management itself, when he backed the takeover. And Cerberus, or the Chrysler Holdings entity it forms to take control of Chrysler in late Summer, will take the lead from GM and Ford in confronting the UAW in the 2007 national contract renewal negotiations, demanding wage cuts for the 55,000 current production employees of Chrysler, and health-benefit and pension cuts from its retirees.

Cerberus management has already pushed hard for severe cuts from the UAW employees at Delphi Corporation since December 2006, when it appeared to begin a takeover of Delphi. This has been its modus operandi in many previous takeovers and "restructurings." Cerberus, like other big private equity funds, expects 20% return on investment—on a company which has been losing money.

Chrysler is known to have a huge $18 billion in unfunded liabilities for retiree healthcare and pensions ($19 billion, said the Kaiser Daily Health Policy Report May 15); this is where the Cerberus restructuring knife will demand to make the biggest cuts. "There's going to be bloodbath there" in health benefits and pensions, Gerald Meyers, former CEO of American Motors and now a university professor, told the Detroit Free Press May 14. "It's going to be wicked in Southeast Michigan and Indiana," he said, referring also to wage-cut demands and possible plant closings.

The already announced 13,000 Chrysler job cuts, to be made in the U.S. and Canada (16 percent of the company's workforce), were justified as a means to make the company "saleable" to a Cerberus or a Blackstone, when it put Chrysler on the block in February. And the rehired Wolfgang Bernhard was the Daimler-Chrysler executive who, between 1999 and 2002, eliminated 26,000 Chrysler jobs and pclosed down six of its U.S. plants.

Ironically, it was precisely Bernhard's drastic shrinkage plan that made Chrysler "profitable" for three years, which has created the huge unfunded liabilities in healthcare and pensions, since the cuts sent the ratio of retired Chrysler production workers to active ones, zooming up to four to one.

The Private Equity Disease vs. FDR

The destruction of the U.S. auto industry, which is crucial to returning the U.S. economy to having a productive manufacturing base once again, is a particularly serious crime. Older Americans will recall that the conversion of the auto industry to war production provided the indispensable economic engine for the defeat of fascism in World War II. Now that capacity, which has the unique potential for being retooled to build the infrastructure and industry of the future, is being thrown down the scrapheap. GM, Ford, and Chrysler are all in the hands of pirates, looking to make nothing but money.

Equally serious is what this takeover of industry by predatory private equity and hedge funds means to the entire economy as a whole. As a result of the successful assault on the Franklin Delano Roosevelt tradition, which had brought the Federal government back into its rightful role as the protector of the General Welfare, the lives and living standards of the American population have been turned over to the "markets," which now means the ruthless, quick-buck megafinanciers who run private funds.

Essentially, what's being established is a new feudalism, where private fondi run a world financial empire for the sake of the oligarchs of London, and use the entire world as their plantation. There was one successful revolution against that system—the American Revolution. As LaRouche has emphasized, it's going to take the reassertion of those same American Revolutionary principles, as revived by Franklin Roosevelt, to prevent this new wave of looting turning into a New Dark Age. As the case of Cerberus' takeover wave shows, however, the time is short indeed.

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