Cerberus running out of cash for Chrysler

Chrysler is draining its financial reserves rapidly, according to sources cited in a Reuters report. Hundreds of millions of dollars in additional incentives and supplier payments have added to its cash burn and the company may have difficulty funding its operations after the first half of 2009.

Pending asset sales are unlikely to able to cover the outflow; even the sale of the Viper line is seen as bringing in perhaps $80 million.

People with knowledge of the situation are saying that if Chrysler is unable to work out a merger with General Motors Corp or get enough government funding to allow it to ride out the economic crisis, the automaker may be broken up and sold off piecemeal or seek to outsource more corporate functions like human resources and finance.

One source briefed on the plan said Chrysler executives are already making contingency plans, including a move to split up the company’s replacement parts business by brand, completely separating its Chrysler, Dodge and Jeep operations to facilitate their sale.

Chrysler CEO Bob Nardelli joined his counterparts from Ford and GM in Washington yesterday to meet with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reed. The three industry leaders and Ron Gettelfinger, president of the United Auto Workers union, were lobbying for a government aid package that could total $50 billion, including aid for healthcare expenses.

One factor that could cause problems for Chrysler is its ownership by Cerberus Capital Management. The fact that, as a privately held company, Chrysler no longer has to disclose its financials could complicate its efforts to obtain federal financial help. Cerberus’ reputation as a secretive firm with strong Republican political connections could also be a problem

Cerberus is already having to consider giving up control of GMAC if it wants to convert the company to a bank that would be eligible for money from the $700 billion bailout fund set up by the U.S. government. Under Federal guidelines issued in September, owners of more than 33 percent of a bank-holding company may also be subject to banking regulations. This would limit Cerberus’ ability to engage in leverage and non-banking activities, limitations that are unacceptable to the private equity firm.

According to sources, Cerberus is considering several options, including distributing its 51 percent share of GMAC to investors in its private-equity funds.