Chrysler Sale to Cerberus Closes0
Ah, yes. It began with such high hopes but without enough due diligence. Little did what was then Daimler-Benz AG know it was “merging” with Chrysler Corporation wearing an empty suit. The “merger of equals” was anything but. It was a take over. Not a hostile take over, but a take over nonetheless. On the surface, Daimler-Benz got a high volume American manufacturer with some critically acclaimed models and the Jeep brand. They also got thousands of Chrysler-Plymouth, Dodge and Jeep dealers. What they did not get was a solid cycle plan with investment levels sufficient to guarantee competitiveness.
LX Cars Greatest Result of Tie-Up with Daimler-Benz
Perhaps the greatest accomplishment during the brief existence of DaimlerChrysler (name to be changed at a extraordinary shareholder’s meeting on October 4, 2007) was the development of the LX platform. Sharing components with a previous generation Mercedes E-Class (primarily independent rear suspension) the big rear wheel drive sedan – the Chrysler 300 – and wagon – the Dodge Magnum – and later the Dodge Charger sedan – could have set the tone for Chrysler Group going forward. Add the HEMI V8 to the mix and WOW!
LX Cars Were One Trick Pony – No Follow-Up on Design Theme
But Chrysler never followed up on the LXs. On the car side of the business the Chrysler Crossfire was an absolute flop. The Dodge Caliber, Dodge Avenger and Chrysler Sebring have become the darlings of rental fleets. The Jeep Compass the butt of jokes. The LX-Based and almost approved Imperial was thankfully killed before it could go into production. Where is the DNA that could have been passed down from the LX cars? A lineup rich in LX DNA could have been an extremely strong lineup instead of a group of weak sisters.
Sounds Like BMW Rover
Maybe the large German car companies are not destined to own foreign companies. BMW was not able to turn around Britain’s Rover and Rover eventually folded. Was “The Chrysler Problem” the fault of Daimler-Benz? Was there a talent drain at Chrysler with the departure of product guru Bob Lutz and design leader Tom Gale? Did Chrysler cut costs too drastically? Did adopting Daimler-Benz processes create operating problems? But those issues are part of the case study the Harvard Business School is undoubtedly writing right now.
Will Chrysler Prosper Under Cerberus?
The more intriguing question of the moment is “How will Chrysler respond to its new ownership? Will it prosper? Will it struggle even more? Will Chrysler once again develop and sell cars and trucks we covet? Time will tell
DaimlerChrysler – soon to be called something else – issued the following press release today to announcing that the deal to sell Chrysler Group to Cerberus Capital Management has closed.
PRESS RELEASE: DaimlerChrysler Closes Transaction on Transfer of Majority Interest in Chrysler to Cerberus
– Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and Head of Mercedes Car Group: “Today marks a new chapter in the history of our company.”
– Extraordinary Shareholders’ Meeting to decide on change of name on October 4, 2007
STUTTGART, Germany — DaimlerChrysler today completed the closing for the transfer of a majority interest in the Chrysler Group and for the related financial services business in NAFTA to a subsidiary of Cerberus Capital Management, L.P., a private- equity company based in New York. A subsidiary of Cerberus takes over 80.1% in the Chrysler Holding LLC, while DaimlerChrysler retains a 19.9% interest, as announced in May 2007.
The effects on the financial statements of DaimlerChrysler will be explained on August 29, 2007.
Basically, the conditions of the transaction and the economic effects have not changed since the agreement was signed on May 14, 2007. Furthermore, DaimlerChrysler and Cerberus have agreed to support the financing of the majority takeover of Chrysler by Cerberus in light of highly volatile US loan markets. Both companies will subscribe $2 billion of second lien debt for Chrysler’s automotive business, to be drawn within 12 months. DaimlerChrysler’s portion will be $1.5 billion. The debt will be priced at market conditions. One year after the closing, DaimlerChrysler has the right to sell this loan in the credit market. The maturity of this loan is 7 years.
DaimlerChrysler’s financing support is a strong sign of its overall determination to make sure that, under the majority of Cerberus, Chrysler has a good start as a successful stand-alone car company.
As of today, the Board of Management of DaimlerChrysler AG is reduced to six members: Tom LaSorda, Eric Ridenour and Tom Sidlik are no longer members. Within the Board of Management, Bodo Uebber additionally assumes responsibility for procurement.
Due to the new corporate structure, DaimlerChrysler AG is to be renamed as Daimler AG. The shareholders are to decide on this change at an Extraordinary Shareholders’ Meeting in Berlin on October 4, 2007.
Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and Head of the Mercedes Car Group: “Today marks a new chapter in the history of our company. Based on the clearly defined strategies in our Mercedes Car Group, Truck Group, Financial Services business divisions and for vans and buses, and our company’s healthy balance sheet, we have every reason to move confidently into the future.”