"The Chrysler Group has been sold to Cerberus Capital Management LP for $7.4 billion dollars. This also means that Chrysler is the first of the big three that is privately-owned.
Cerberus will own 80.1 percent of the company, whereas Daimler will continue to own the remaining 19.9 percent (for what reason, we cannot say). By transferring the new holding company -- to be called Chrysler Holding LLC -- to Cerberus free of debt, Daimler has to foot an additional bill of $1.6 billion. Cerberus will be on the hook for pension and health care obligations, however.
In terms of the future, things look pretty muddled. Cerberus is known for buying companies on the brink of bankruptcy and then 'instituting drastic measures to make them profitable again.' Could this mean the selling off of certain brands to the highest bidder? (Selling Jeep to GM comes to mind.) Could this mean the scrapping of certain projects? (Goodbye Challenger?) Could it mean some serious cutbacks in employee benefits? "
Daimler taking on over a billion dollars in debt to get out illustrates just how bad the situation is for American auto companies - they owe so much to their former employees (and future retirees) as pension & medical benefits that we'll probably see all three of them get out of their obligations via bankruptcy or legislation.
Ultimately, the American public will pay for these benefits as either inflated prices on American cars, increased taxes, and/or profits going overseas.
News-Leader.com | Business:
"'The Germans never knew really quite what to do with Chrysler,' Cheetham said. 'Managing across the pond and managing this very, very different business is very difficult.'
It all looked different in the mid-1990s. Daimler-Benz was eagerly searching for new markets and opportunities, at the dawn of what many thought would be an age of global consolidation. Chrysler was an ideal target, with cleverly designed, efficiently built minivans, pickups and Jeeps.
Throw in a rich country that was car crazy and it made perfect sense.
Daimler and Chrysler said it was a 'merger of equals,' but then-Chief Executive Juergen Schrempp later dismissed that in an interview, leading to a lawsuit from billionaire investor Kirk Kerkorian. He lost, and it was clear the center of power had shifted to Stuttgart, Germany."
With the American leadership chased out in the '90s and the German leadership leaving now, it will be difficult to stay focused on the business of building cars & trucks. I hope they bring in some good talent and don't just hold a big garage sale.
Retooling likely for newly purchased Chrysler - Los Angeles Times:
"Although Cerberus is ponying up all those billions, most of the money will be pumped directly into the new Chrysler Corp.'s automotive and financial operations. Only $1.35 billion would go directly to Daimler, which in turn would lend Chrysler $400 million and pay a variety of closing costs and other fees that would result in a net cost to the German automaker of $650 million.
'In effect, Daimler is paying Cerberus to assume the risk of owning Chrysler and its $19 billion of underfunded healthcare liabilities,' "
. . .
"In addition to the automotive organization, Cerberus would gain control of Chrysler Financial, the company's $57-billion lending arm.
It is expected to meld some of that unit into another of its recent acquisitions, GMAC Financial Services, to shave costs.
"I looked at this deal and didn't see at first glance how it made sense," said Tulane University finance professor Peter Ricchiuti, a former Wall Street broker and an equity market specialist. "I wasn't sure what Cerberus could do that DaimlerChrysler couldn't. But if they can somehow combine a lot of the operation of Chrysler Financial with GMAC, that would help make a difference."
Ricchiuti and other analysts see Cerberus as being in a better position to extract wage and benefit concessions from Chrysler's unions than was DaimlerChrysler.
That's not a process that can be accomplished overnight, but one potential advantage Cerberus gains is that Chrysler has acknowledged its failings and begun to develop small cars and fuel-efficient engines to help it weather the changing market.
Chrysler has launched a major housecleaning aimed at eliminating 13,000 North American manufacturing and salaried jobs and shutting several factories. Those are cost-cutting moves Cerberus won't have to make, freeing the company to concentrate its turnaround efforts on improving Chrysler's operating efficiencies and its product portfolio."
This all sounds good, but American manufacturers make big vehicles because that's what the public wants to drive - despite the cost of fuel. Retooling to compete head to head with the imports puts them at a disadvantage making lower profit vehicles in competition with the world's experts in that market. This sounds like tough times coming for the auto-workers.
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