With the recent collapse of the auto industry, the media has been increasingly interested in looking at private companies such as Cerberus Capital more closely.
This is especially important if the government is going to be bailing out any of the Big Three, who will soon be referred to as the “Broke Three”.
According to Warren Buffet, who is a special advisor to president-elect Barack Obama:
The government should insist top executives at Ford Motor Co., General Motors Corp. and Chrysler LLC invest a significant percentage of their own net worths in the Detroit-based companies, Buffett said, ensuring executives and taxpayers would share in any profits or losses.More...
A Chrysler spokeswoman said the company had no comment because it hadn’t heard Buffett’s interview. Ford and GM representatives were not immediately available for comment.
Buffett said the government should be able to drive a deal like one of the ones he makes when Berkshire buys businesses, because automakers appear on the brink of bankruptcy.
Buffett said he’d tell the auto executives, “‘We’ll give you more upside (than bankruptcy), but you’re going to lose if we lose.’”
Bankruptcy would be a poor solution for the auto industry, Buffett said, so he hopes a better way can be found to work out the union contracts and other issues the companies face.
He reiterated his belief that the U.S. economy will eventually recover from its current problems, but he predicted there will be more pain first.
“There are going to be more people unemployed. And I mean, I can’t think of anything worse than going home to a family, saying, ‘I lost my job today,’” Buffett said.
He said he expects the unemployment rate to continue climbing past 8 percent and he doesn’t expect the rate to start falling anytime soon.
Buffett said he thinks Treasury Secretary Henry Paulson is a “high-grade guy” doing a good job with an extremely tough situation as he tries to reinvigorate the economy.
“I don’t think I could have done a better job, and I don’t think most of the congressmen could do a better job,” Buffett said.
He said he doesn’t regret agreeing in September to invest $5 billion in Goldman Sachs, because he doesn’t think the investment bank would still agree to pay Berkshire the 10 percent annual dividend Goldman promised. Since Goldman announced Berkshire’s investment, it received $10 billion in assistance as part of the government’s $700 billion bailout plan.
Since Nov. 7, when Berkshire reported third-quarter earnings, its shares have fallen about 30 percent. Berkshire reported a 77 percent drop in profit and said unrealized investment losses of about $1 billion weighed on the results.
Class A shares of Berkshire, which are still the most expensive U.S. stock, were selling for about $82,450 Friday afternoon. The stock set a new high of $151,650 in December.
Buffett said he’s not bothered by the recent share-price decline, because he’s been through similar drops before and he values Berkshire based on its underlying businesses.