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Daimler v. Chrysler divorce: Cerberus a cool parent, UAW optimistic

Manufacturing News, Source : The Manufacturer US
Published : 14 May 2007 13:11

It seems a non-event, three months after DaimlerChrysler hinted at it, but here it is: DaimlerChrysler has sold its US Chrysler unit to Cerberus Capital Management, a private equity firm. Cerberus will buy an 80.1 percent stake in Chrysler, for a total $7.41 billion.

German automaker Daimler will maintain minority share of 19.9 percent.

As Forbes characterizes it, “In the end, DaimlerChrysler had to pay to have somebody take Chrysler off of its hands…DaimlerChrysler said [that] it would essentially put up 500 million euros ($677.7 million) to shift 80.1% of Chrysler to [Cerberus Capital Management]…In a complex transaction, Daimler will actually receive 1 billion euros ($1.4 billion), but it will retain Chrysler's debts, leading to a net cash outflow.”

CNN called the move a bid to “undo the most expensive and one of the least successful mergers in auto industry history.” Indeed, Daimler-Benz paid $37 billion for Chrysler in ’98.

Newsweek Midwest Bureau Chief Keith Naughton, writing for MSNBC, speculates that Cerberus is "not out to save Chrysler for the good of America." Why would they be? Recall that then-President Jimmy Carter saw Chrysler as key to US economic health, hence the bailout that he orchestrated through congres. Cerberus is an investor, which owns Fila and Formica among other brands. Naughton quotes University of Michigan business professor Gerald Meyers, a one-time AMC executive when it was sold to Chrysler, who observed that “Cerberus' game is all about build it up, sell it and get out."

Cerberus will keep Chrysler CEO Tom Lasorda in charge, but he'll report directly to Wolfgang Bernhard, Chrysler’s former No. 2, now an advisor to Cerberus.

UAW President Ron Gettelfinger has declared the union "ready to work with the new ownership of Chrysler Group." Gettlefinger and Vice President General Holiefield, who directs the union’s DaimlerChrysler Department, Gettlefinger and Holiefield met with DCX officials in Germany before the sale, then said they "felt comfortable enough to support the transaction." Gettelfinger said. ‘We have to believe they are very concerned about the future of the U.S. auto industry.”

The DCX announcement, and rumors of the Ford family selling its stake in Chrysler, sent shares of those automakers spiking on the Monday of the announcement, plus an ancillarly feel-good lift to rival General Motors.

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