Cerberus Capital Management L.P.'s bail-out of its ownership of GDX Automotive is interesting, logical and awful.
It's interesting because the huge private equity company spent a sizeable amount of money-$147 million-to buy the automotive products business from GenCorp Inc. in 2004. Cerberus did it at a time when a number of American automotive suppliers were in or heading to the shelter of Chapter 11 bankruptcy protection.
But that's just the environment that encourages investment companies to go to work-buy low, make it more attractive, sell high. GDX, despite being the No. 2 automotive weatherstripping maker worldwide, was posting huge losses, and at $147 million, it was a fire sale.
Cerberus took the risk because given enough time, a good business plan and a bit of luck, the payoff could be huge when it eventually sold GDX.
Didn't happen. The climate for automotive suppliers remains stormy as prime customers, like the struggling Detroit auto makers, share their pain with their vendors. Cerberus did try to enhance the business by adding the vibration damper assets of Borg Warner Inc. to GDX. But a private equity company won't wait long for a turnaround.
Cerebrus didn't. It decided to cut its losses, unload GDX and, in a riskier move, bought most of Chrysler for $7.4 billion. More risk, bigger payback-time will tell.
In the world of high stakes investment, it was logical for Cerberus to dump GDX at this time and just as logical for Wynnchurch Capital to buy it. That Chicago investment company is building its MAPS Holding Inc. affiliate into a vehicle sealing powerhouse, following its purchase of Metzeler Automotive Profile Systems-North America.
The awful part of the equation is that Wynnchurch isn't buying what it doesn't want-namely six GDX plants the current owner said it will close before the deal is concluded. More than 1,000 jobs in the three North American plants alone are in jeopardy.
At least the remaining parts of GDX now will belong to a company intent on expanding its footprint in the automotive business. In that sector, that's as good a sign of job security as anything.