Cerberus Takes Control Of Chrysler

Private Equity Firm Bought Beleaguered Automaker In $7.4B Deal

(AP)  Private equity firm Cerberus Capital Management took control of Chrysler Group on Friday in a $7.4 billion deal designed to set the beleaguered 82-year-old automaker on a path to recovery as a private company.

DaimlerChrysler AG of Germany, which also builds Mercedes luxury cars, agreed in May to transfer an 80.1 percent stake in Chrysler to New York-based Cerberus. Daimler will retain a 19.9 percent interest in the company.

"We as Daimler employees have already made our choice. And I am sure the coming years will confirm that we've made the right decision," DaimlerChrysler Chairman Dieter Zetsche said in a letter to Daimler employees.

DaimlerChrysler is to be renamed Daimler AG, according to a statement from the company. Shareholders are expected to ratify that change at a meeting Oct. 4 in Berlin.

Former Chrysler executive Wolfgang Bernhard, a senior adviser to Cerberus, was expected to be named chairman of the board of directors of Chrysler Holding LLC. Chrysler Chief Executive Tom LaSorda was to continue to run the company's day-to-day operations.

Although Bernhard frequently has been seen on Chrysler's headquarters campus, Cerberus Chairman John Snow has said Cerberus plans to keep the same management team in place and give it the freedom to implement its restructuring plan. Snow has said LaSorda can draw on experience of Bernhard and other Cerberus advisers as he works to restore Chrysler to profitability.

Snow also said that with the closing, Chrysler is free of the short-term quarterly earnings pressures that public companies face, since there will be no Chrysler shares. DaimlerChrysler shares will change to Daimler, but otherwise shareholders won't be affected.

The sale ends a stormy nine-year combination of Daimler and Chrysler, which combined in a $33 billion deal that was hailed as creating a global giant. Instead, Daimler, like competitors Ford Motor Co. and General Motors Corp., found itself battered by rising pension and retiree health costs in the United States. At the same time, Mercedes was stumbling due to quality problems and consumers were turning away from Chrysler's stable of trucks and sport utility vehicles as gas prices spiked.

Chrysler made $1.8 billion in 2005 but lost $618 million in 2006 and $1.98 billion before interest and taxes in the first quarter of this year. DaimlerChrysler didn't report second-quarter earnings for Chrysler because of the impending sale.

The losses brought on the sale and forced Chrysler to announce a restructuring plan that will use buyouts and early retirement offers to shed 13,000 hourly and salaried jobs in the U.S. and Canada by 2009.

Combined Chrysler, Dodge and Jeep sales were down 2.3 percent overall in the first seven months of 2007, according to Autodata Corp. Jeep was a bright spot, with a 12 percent increase in sales thanks to the new Jeep Compass crossover and Jeep Patriot, a small sport utility vehicle. Chrysler should get a boost this month when it introduces the redesigned 2008 Dodge Caravan and Chrysler Town & Country minivans, which include a second-row seat that can spin 180 degrees to face backward.

The Cerberus deal was sidetracked last month when bankers marketing a $12 billion Chrysler debt sale to major institutional investors ran into turmoil in the mortgage industry that weakened demand for leveraged loans and high-yield debt.

With no investor appetite, seven banks led by JPMorgan Chase & Co. had to keep most of the debt on their books. The banks will front about $10 billion as a loan. They could come back to the market after the summer when investors are more active. Cerberus and DaimlerChrysler will fund the other $2 billion.

As part of the deal, Cerberus agreed to invest $6.1 billion in Chrysler and its financing arm and to pay DaimlerChrysler $1.4 billion. DaimlerChrysler would remain liable for certain expenses that could result in it paying Cerberus up to $1.5 billion to complete the transaction.

Cerberus, however, has agreed to take on most of the auto company's approximately $18 billion in long-term retiree health care costs.

[toldyouso21]

"Chrysler should get a boost this month when it introduces the redesigned 2008 Dodge Caravan and Chrysler Town & Country minivans, which include a second-row seat that can spin 180 degrees to face backward. "


I don't know about a spinning seat but I LOVE, LOVE, LOVE the Chrysler Dodge Caravan and have had one since 1986. I am on my third, have owned it since 1997. People have told horror stories about this model, but I have a 1997 Dodge Caravan that is still on it's original transmission and still going strong. Almost 400K on it and the ride is still smooth.

The fact is, many Americans fail to really take care of their cars and haphazardly get the fluids and oil changed when they should. Routine maintenance means the cars can last a long time. My husband has been driving his car for over 300K miles also. I am going to try for at least 500K on my old van, but would love it if she could make it to 1 million. she still has get up and go and is roomier than many of the newer models. Glad Chrysler is back to its roots--an American owned company!!!!!

[thgdriver]

Chrysler has 3 tires on a banana peel and one tire in the nearest junk yard.

By the way my neighbor was a die hard Chrysler customer till his last one had an engine seize for no apparent reason (always serviced) anyhow, it was out of warranty and Chrysler turned their back on him. He traded it in on a Toyota that he loves.

Ps. The Toyota had a brake problem out of warranty and he tells me they took care of it at "NO CHARGE".

[thgdriver]

Chrysler's glory days are long ago buried. I see them going the way of American Motors (Hudson, Nash, Rambler) Before I purchase a new car I try to see how well they hold their value. In other words, before buying a 2007 I look to see what the 2003 or 2004 model is trading for against what it sold for new. Except for some (antique, classic, limited models) and the like, all cars lose value but some hold their value better then others in like condition. I found that Chrysler's did not fair too well in this department. I really liked the 300 C All wheel drive V8 but they are like cockroaches and all over the place nowadays.

[edintex]

I purchased a new Dodge Intrepid in 2000. Less than a year/21,000 miles later I paid $6,500 to have the entire engine replaced. Seems the engine went bad while under warranty, but I was missing 1 oil change receipt. Yep, they got me good.

I owned 3 other Chrysler trucks/autos before that one. Now, it wouldn't bother me if Chrysler went completely down the drain along with the pension fund for their "quality" workers.

I am a Japanese auto kind of guy now...

[brianbwb-2009]

Posted by billpl,

In a capitalist republic that purports to be governed by the rule of law, a contract is a contract, if you sign an agreement to provide health care for someone who gave his entire labor life to your company, it is not too much to expect you to honor that signed agreement.

The capitalist part comes in because of its' rule; if you can't allord it, don't buy it. Chrysler did, now they must pay.

If business didn't traditionaly take an adversarial stand against the workers who made the products that made the CEOs rich, (pay them as little as possible, reduce them to slave labor whenever possible) the unions would not have been needed to push for wages and benefits that later got out of control.

The corruption of both sides contributed to the current situation, in equal measure.

[brianbwb-2009]

Posted by FeelFree1

You beat me to it, dude, Chrysler now owned by the Hellhound, Cerberus. Anyone ever wonder why and how this name was chosen for this company? That must have been an interesting board meeting...

[billpl-2009]

"approximately $18 billion in long-term retiree health care costs"

which one of you guys mentioned "welfare for the rich"????

for every American make and made car you buy, $2000 goes toward retired UAW employees. You know, the same people that built the worst made cars (piles of junk) in the world for 30 years running?

who's on welfare here???

[feelfree1]

We see that our former Treasury Secretary, John Snow(-job) heads up this band of Corporate pirates. How nice for him.

Cerberus: "named after the mythical three-headed dog that guards the gates of hell"

What an appropriate name for this band of Satanists. These a-holes will find a way to steal public money to fund their "recovery". Count on it.

Welfare for the rich. It's the U.S. corporate way.

[navyretired2]

Cerberus has officially stated they don't plan to chunk off the company, and plan to return it to profitability and success.

Let's see how that plays out...

[j_flood]

One of Detroit's Big Three in private hands - this will be interesting. When the first bit of Chrysler is jettison - the rest will fly off too. Probably to a Chinese concern built with Cerberus backing.

Good luck Chrysler workers!