Here’s How Badly Chrysler Needs a Bailout

Its private-equity owner, Cerberus Capital, says it will forgo any profits on a later sale of the company if it gets federal help now.

Private-equity firm Cerberus Capital Management, which owns Chrysler, said it will give up any profits on a future sale of the car company if it receives federal financial aid, Bloomberg News reported.

Speaking at a conference in Palm Desert, California, Chrysler CEO Robert Nardelli, a Cerberus employee, said Cerberus founder Stephen Feinberg “has basically gone on record saying he would forfeit” profit from a sale following a bailout, according to the wire service.

That would address a key argument against some government bailouts: that private-equity owners, as well as company executives, might end up benefiting the most from the government’s generosity. “This is a sign they need the money and are willing to do anything to get it,” Dennis Virag, president of Automotive Consulting Group, told Bloomberg. Taxpayers won’t want to let a private-equity fund reap the profit, he added.

The House of Representatives will hold hearings next week on whether to use some of the $700 billion in bailout money that had been earmarked for the financial-services industry to provide $25 billion in low-interest loans for U.S. automakers.

Some reports have suggested that General Motors and Chrysler might end up merging. Bloomberg wrote that one option would be to use $10 billion to $15 billion in U.S. loans and guarantees to help attract private investment in the combination.

Attracting private-sector money would make the deal more palatable to some, although labor groups would not be happy about a combination because it would result in the loss of union jobs. “It’s still the best option,” Kim Rodriguez, head of Grant Thornton’s automotive restructuring group, told Bloomberg. “All you are going to do is provide loan guarantees; there’s no real structural change there.”

Another possibility for a merger would be a so-called prepackaged bankruptcy, under which financing would be lined up in advance.

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