KEY POINTS:
The retreat of billionaire Kirk Kerkorian and Cerberus Capital Management from stakes in Ford and Chrysler may leave the United States motor industry without new funding just as sales head to a 26-year low.
Kerkorian's Tracinda said last week it might sell its stake in Ford and investor
Stephen Feinberg's Cerberus is seeking to merge Chrysler with General Motors or another manufacturer.
The industry's recession, started by US$1-a-litre petrol and extended by the credit crunch after the bankruptcy of Lehman Brothers Holdings, has battered investments in the US car companies.
"I don't know where else they can turn right now, that's the problem," said Thomas Stallkamp, a former Chrysler president who is a partner at buyout firm Ripplewood Holdings.
"There is nowhere to turn until the credit market opens up, and even then the market will be nervous about automakers until the outlook for 2009 is clearer."
The defection of Kerkorian and Feinberg's attempt to reduce his investment may speed consolidation among carmakers as the freeze in the debt market means it will be harder for GM, Chrysler and Ford to raise extra cash by borrowing or through the sale of assets.
"Typical investors, and Cerberus is anything but typical, are running from the automotive industry," said Warren Feder, partner at Carl Marks Advisory in New York. "It's hard to see any upside with a degree of comfort, and you need that to make an equity investment."
The pressure to find liquidity means "something will happen with Chrysler", and it probably would not survive as an independent company, said Kimberly Rodriguez, principal of consulting firm Grant Thornton's automotive practice. Investors might have to act to support their own holdings, she said.
Chrysler is the third-largest US car-maker.
Banks including JPMorgan Chase and Citigroup also hold some debt from Cerberus' purchase of the carmaker from Germany's DaimlerChrysler AG in August last year. Those lenders might support a GM-Chrysler tie-up as a way of stabilising the companies and increasing the value of that debt, Rodriguez said.
"There's no question, regardless of your stomach for risk, that auto has taken it on the chin the last six months. The biggest issue, from an investment standpoint, is that we're not at the bottom yet."
GM, the largest US carmaker, is the worst performer in the Dow Jones Industrial Average in the past 12 months, losing 84 per cent of its value. Ford has dropped 75 per cent.
GM is trying to sell a medium-duty truck unit, a French factory and its Hummer brand to raise cash.
Chrysler, which has paced the US industry so far with a 25 per cent sales decline, has a goal of selling more than US$1 billion in assets this year, including its Dodge Viper sports car.
US deliveries could fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, said Himanshu Patel, an analyst at JPMorgan Chase in New York, last week. His estimate for next year would be the lowest rate since 1982. US sales were 16.1 million last year.
By the second quarter, GM may fall below the US$12.5 billion cash reserve the company needs to pay its bills and will need asset sales, Government loans, new debt or cash from a merger with Chrysler to get through the rest of the year.
Kerkorian is unwinding his Ford stake after the value of his US$995 million holding shrank by two-thirds and put his firm's gambling investments at risk. He was also concerned about departures of senior Ford executives such as chief financial officer Don Leclair, the Detroit News reported, citing a person close to Kerkorian.
Last week, Ford's collapsing stock price forced him to pledge another 50 million shares of his MGM Mirage casino company to back the US$600 million credit line used to buy into the second-largest US carmaker.
- BLOOMBERG
