The private ownership of DaimlerChrysler's American division may be just what the doctor ordered for Chrysler's fast recuperation. After it was agreed that the Cerberus Capital Management LP will purchase 80.1 percent of Chrysler's shares for $7.4 billion, it appears now that Daimler will just be receiving $673 million. This is because part of the sales proceeds will back Chrysler's turnaround plan.
For the past couple of decades, auto industry's experts have predicted a major downsizing of the U.S. auto industry because of the plant's overcapacity coupled with shrinking sales, increasing production costs, and other notable factors. Automakers have tried to ward off this inevitable transformation by attempting what now can be deemed as a nip and tuck. But cosmetic surgery is not enough for Chrysler. Efficient are inevitable to make a timely stop so as to end sales doldrums.
It can be recalled that when Daimler-Benz mounted a $36 billion takeover of the Chrysler Corp. in 1998, the German carmaker called it "a merger of equals." In May, when DaimlerChrysler announced plans to rid itself of Chrysler, the Teutonic term of art was "a $7.4 billion sale."
Daimler CEO Dieter Zetsche denied that he was paying Cerberus to take Chrysler. "Cerberus invested $7.4 billion into this transaction, which obviously is not any form of being paid," he said. "In essence, they paid us to take the company," Cerberus chief Lenard B. Tessler told his shareholders recently, as reported by the Wall Street Journal online. "I'm not talking out of school."
"We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler. Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry. Most importantly, we believe in Chrysler," said John W. Snow, the Chairman of Cerberus.
Snow continued, "We would like to thank DaimlerChrysler for their good stewardship of this American icon over the last decade. We are aware that Chrysler faces significant challenges, but we are confident that they can and will be overcome. A private investment firm like Cerberus will provide management with the opportunity to focus on their long-term plans rather than the pressures of short-term earnings expectations."
Zetsche was quoted as saying: "We're confident that we've found the solution that will create the greatest overall value - both for Daimler and Chrysler. With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."
Critics in the industry said that it was hard enough for Zetsche and his board to face the reality that Daimler paid $36 billion for Chrysler while Cerberus was putting up just $7.4 billion. Even if you add the $11 billion in profit, Zetsche said that Chrysler has provided Daimler through the years, that is still a $17.6 billion loss, they added. But admitting that the company is not going to get any hard cash when the sale closes in July, just 19.9 percent of the new Chrysler, would have been humiliating. So Dieter slapped on a smile and ended up smiling all the way to the bank, critics noted.
The extravagant price tag also signaled that Cerberus paid serious money in a serious bid to repair the ailing Chrysler. Some critics said that maybe this deal really is win-win. Daimler gets out from under Chrysler and the company's stock increases. The private equity firm gets to pick up a popular automaker at a bargain and gets leverage to cut costs. What is certain is that it is only fitting that Daimler had to throw in its own cash to make the sale. After all, Chrysler is the company that invented the rebate, they stressed.
