Workers May Pay For Chrysler's Sale

A 2007 Chrysler 300 sedan outside a dealership in Aurora, Colo., May 13, 2007.
AP
Chrysler's 80,000 workers may pay the price for German-based parent DaimlerChrysler AG's decision on Monday to turn over the keys of its U.S. car company to private equity firm Cerberus Capital Management for $7.4 billion.

Talks begin soon between the United Auto Workers and Detroit's carmakers on a national contract. Analysts expect Cerberus, headed by former Treasury Secretary John Snow, to push for radical changes at its money-losing Chrysler, Jeep and Dodge operations.

The announcement sent shudders through much of Chrysler's workforce, despite assurances from Chrysler CEO Tom LaSorda that there are no major plans under discussion with Cerberus to cut jobs beyond a previously announced restructuring plan.

That wasn't good enough for Canadian Auto Workers President Buzz Hargrove. He said he had "enormous concerns," noting that many private equity groups have a long-standing history of "job cuts as opposed to job creation."

The sale of 80.1 percent of Chrysler to Cerberus Capital Management LP ends a messy $36 billion marriage in 1998 that was set up to create the ultimate global automotive powerhouse.

Instead, the maker of the upscale Mercedes-Benz brand of cars found itself, like competitors Ford and General Motors, battered by rising pension and retiree health costs in the United States as Toyota and other Asian manufacturers won the hearts of U.S. consumers with what many view as more reliable, fuel-efficient models.

Germany-based DaimlerChrysler said it would keep a 19.1 percent stake in the renamed Chrysler Holdings LLC. The private company will be run by Cerberus, which said it would keep the present management in place.

In the end, Daimler was ready to pay any price for a divorce, reports CBS News correspondent Anthony Mason. As part of the deal, Cerberus will assume Chrysler's health care liabilities, estimated at about $18 billion.

The $7.4 billion deal works this way: Cerberus will invest $5 billion in the new Chrysler's automotive operations, $1.05 billion in Chrysler's financial arm and pay $1.35 billion to DaimlerChrysler. But the German automaker agreed to absorb $1.6 billion in restructuring-related costs and loan the new company $400 million. Depending on whether the loan is repaid, its out-of-pocket costs could ultimately total $650 million.

Cerberus is heavily invested in the auto industry, adds Mason, with stakes in Guilford Mills, the largest seat supplier in the United States, and GMAC, the finance arm of General Motors.

"They bring some financial discipline that I think this industry has needed," David Cole of the Center for Auto Research told auto reporter Jeff Gilbert of CBS radio station WWJ. "Unfortunately, that's often very painful."

UAW President Ron Gettelfinger said Monday that after his pitch to keep Daimler and Chrysler together failed, it became clear that Cerberus was the best option for workers.

"So once that decision's been made, then you've got to deal with the cards that you're dealt," he said Monday afternoon, adding that he did not think the sale would have an impact on upcoming national contract talks.

Chrysler and the other Detroit automakers were caught flat-footed when gasoline prices spiked to around $3 per gallon after Hurricane Katrina, sending buyers away from the truck-based models on which they made most of their money.

Snow tried to reassure workers during a news conference, saying his company is in the investment for the long term, with plans to keep Chrysler's management and work with unions to return the struggling automaker to profitability.

"We think at this particular point in Chrysler's history, there may be opportunities in the private world, the world of private investment, that create more room for growth and expansion, that allow management to focus with greater intensity on the day-to-day business of producing better cars," Snow said at a news conference in Germany.

Car buyers have little to fear from the transaction, according to one industry analyst, because warranties and spare parts requirements must be honored by law.