Chrysler Is Sold to Cerberus

DaimlerChrysler (soon to be Daimler) has announced this morning that they have sold Chrysler to Cerberus Capital Management of New York, a large private-equity firm for $7.4 billion.

After lots of people did the math this morning on Wall Street, they’ve all come to the conclusion, that despite Daimler’s best efforts to hide it, Daimler has actually PAID Cerberus approximately $650 million to take Chrysler. So after paying $36 billion to acquire (laughably called a “merger” at the time) Chrysler in 1998, DaimlerChrysler has actually paid someone to make it go away. But, Daimler got rid of approximately $18 billion in healthcare and pension liabilities, which has to count for something. The new owner now has that millstone around its neck.

Over at Breakingview.com, Hugo Dixon took note of the rise in DaimlerChrysler’s stock price this morning (2.8% so far) and said that “if you have to pay to get rid of a business and shareholders still cheer, that really rams home how bad a business you had.”

Mark Warnsman, an analyst from Prudential Equity Group, summed up the transaction this way: “Daimler expects to realize relatively little from the sale beyond its ability to draw a line under what has been perceived as a nine-year misadventure,” he wrote in a research note Monday.The overwhelming sentiment among industry analysts and stock analysts is, however, relief that DaimlerChrysler got out as easily as it did – the feeling is that it could have been worse.

Somewhat surprisingly, Ron Gettlefinger, the president of the UAW, said that the deal “was in the best interests of our UAW members, the Chrysler Group and Daimler”. The UAW previously stated its opposition to any sale to a private-equity group, fearing that it would be asked for considerable concessions by the new owner.

What a tawdry end to the DaimlerChrysler relationship. Its embarassing for Daimler, humiliating for Chrysler. To Cerberus, it’s a variation on the old joke; the good news/bad news joke. They’re not even going to know exactly what they “won” for sometime until they start flipping over all the rocks there at Chrysler and letting all the snakes (production costs, lack of future product, actual losses on all those sales to rental firms, etc.) slither out.

And you have to believe the UAW is just playing possum at this point. This should be fascinating to watch as it plays out.I hope Chrysler makes it – the automotive landscape wouldn’t be the same without them.

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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11 Comments

  1. Chrysler has really gotten slapped around in this whole situation.

  2. If Daimler was just going to give away Chrysler anyway, why didn’t they just give it away to GM when all the sale talk started weeks ago? GM was interested, as we know now.

    Seems it would have been easier, and less trouble.

  3. I think Daimler did the right thing for their company. Chrysler is going to be a fix-it project for years to come.

  4. Cerberus has virtually no downside if this fails so it’s a good deal for them, and if they cannot turn Chrysler around, then they declare bankruptcy and walk away.

    In that case, the U.S. government would pick up the $18B in pension and healthcare liabilities, or, more accurately, the estimated $25B in healthcare and pension liabilities since it won’t fail for a few years at least, and that will be the tab a few years from now.

    Think about that for awhile, all of you that say Chrysler should just pack it in and call it a day. We all better hope they don’t.

    But, yeah, a pretty sweet deal for Cerberus.

  5. The new Chrysler should do something trnsformative instead of merely trying to improve their current business model.

  6. I’m a manager at a Chrysler dealership and we’re just waiting for the other shoe to drop now. We don’t know what the new owners are going to do in terms of product, financing, incentives, supply, etc. We have some models right now that are tough to sell without strong rebate or financing incentive. Plus we know that some dealers are going to be pressured to give up their franchises so that is a worry. We feel used and abused by DaimlerChrysler.

  7. billp, you’re right, we could all end up as the guarantor on this deal. Most people seem to be oblivious to this fact. Cerberus really got some great terms on this deal as well an easy exit strategy should they need it.

  8. A dumb question, what happens to the DCX Truck Group ?

  9. The Truck Group stays with Daimler, still reporting to Renschler.

  10. who couldn’t see this coming? Big cars and big trucks are going to have a shrinking fan base in the near future. The new owners of Chrysler need to change their products ASAP.

  11. I think this is great news for both Chrysler and Daimler. Like two nice people that should have never gotten married, they will both be happier after the divorce.

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