Where are the vultures?

The auto industry is a tempting carcass that even the vultures won’t consider. Typically, when a corporation the size of GM founders, corporate raiders of every stripe flock to the scene. They’re after the assets or the cash flow or sometimes the tax losses. Hedge funds and private equity groups would be sniffing around, looking for a great deal. That’s what happened to Chrysler. Cerberus Capital made a lowball offer for the ailing automaker once word got around that Daimler-Benz was willing to give it away. Unfortunately for Cerberus and its management, this was not a flip-and-strip. And even with a capable cost-cutter as CEO, a top-to-bottom reorganization will take many years and many billions of dollars. Throw in a disastrous turn in the economy and you have some real trouble on your hands. Ford and GM are also being pummeled in this recession. Sales are off by billions of dollars.

As of this date, the market value of GM and Ford stock combinedis roughly $9 billion. That means anyone with $9-10 billion can offer existing shareholders cash and effectively own both corporations. The combined annual revenues of both corporations is over $200 billion. One would think that vultures would have been circling for the past two years as both GM and Ford hemorrhaged cash. But they haven’t. In fact, Bill Gates or Paul Allen could easily write a check  out of their household accounts. No Middle East sheik, no Asian billionaire or Russian mobster has even considered a move. Kirk Kerkorian, the Vegas entrepreneur and investor, has taken a beating in his attempts to buy into GM and Ford.

What’s keeping the turnaround artists, the LBO experts and the private equity groups away is the lack of available credit and collapsing vehicle sales. Both combine to create an incredibly difficult and complex financial situation. Anyone considering a play to control either Ford or GM would need billions in low-cost borrowing in order to accomplish a restructuring - something both firms desperately need. And everyone is standing pat, waiting for something to happen. The $36 billion the carmakers are requesting is just a band aid. It will never be repaid because the Big 3 haven’t even earned $36 billion all told in the last 10 years. Consider it a gift from the American taxpayer. Congress should consider simply guaranteeing a $30-50 billion loan to anyone with a plan that shows they can do a better job of running GM or Ford than present management. Let’s ask Warren Buffet.