Cerberus, Daimler Escalate Fight Over Chrysler

(MoneyWatch)  The Wall Street Journal characterized the fresh dispute between Daimler and Cerberus over Chrysler as "open warfare."

That's overstating the case, but the fight has the makings of a nasty dispute, with roots dating back to the first days of the turnover of Chrysler from Daimler to Cerberus.

Cerberus bought 80.1 percent of Chrysler for about $7.2 billion in August 2007. In selling Chrysler, Daimler undid the DaimlerChrysler merger, which took place back in 1998. However, Daimler kept 19.9 percent of Chrysler.

In September, the companies announced that Cerberus was in negotiations to acquire Daimler's remaining stake. It was those negotiations that created the most recent dispute, and laid bare the longer-running conflict.

Before now, the companies had only mixed success at keeping their disagreements private. Last month, they openly sniped at each other over the size of Chrysler's losses for the second quarter of 2008.

On Nov. 26, Daimler went public with the larger dispute. In a written statement, Daimler said Cerberus was making the negotiations over Daimler's 19.9 percent of Chrysler "considerably more difficult" by making "absurd" charges and "exaggerated demands."

The Daimler statement was short on specifics, but managed to imply that Cerberus was accusing Daimler of providing, "incomplete information about the business."

A Daimler spokesman denied the "incomplete information" accusation, in a separate statement on Nov. 28. "Before the signing of the transaction there was a detailed due diligence. Cerberus was assisted by professional and experienced advisors. Daimler made all information/details which were needed before signing the contract on the transaction available to Cerberus," Daimler said in the statement.

Separately, Cerberus responded on Nov. 26 to Daimler's initial statement. "Cerberus and Chrysler have concluded that Daimler intentionally and materially breached its obligations under the relevant contracts relating to the Chrysler transaction," the Cerberus statement said.

Cerberus says that Daimler allegedly misrepresented, "extraordinary changes in underwriting practices with regard to vehicle acquisition financing and leasing, as well as non-ordinary course lending and leasing practices."

That's hardly plain speaking, but "leasing" is a loaded word in Chrysler's recent history. While other car companies have cut back on leasing, Chrysler's captive finance company so far is the only captive finance company to quit leasing cold-turkey, citing losses on the value of used trucks coming back from leases.

If lease-related losses are the issue, there's a lot of money at stake. Daimler took a charge of close to $900 million last month, mostly for losses on vehicles coming back from leases -- its own and Chrysler's. That's enough money to fight about.

"We are disappointed that Daimler has refused to negotiate in good faith in the face of the plain facts of which they are well aware. Accordingly, we are considering our strategic options," Cerberus said in its Nov. 26 statement.