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Chrysler is sold

DaimlerChrysler group is split with Β£3.7bn sale

By Adam towler / Tuesday, May 15, 2007

One of the world’s largest car companies has been split: DaimlerChrysler has sold 80.1 per cent of Chrysler, Jeep and Dodge to Cerberus Capital Management, a New York-based private equity group.

The sale is worth £3.7bn and concludes after three months of negotiations. It’s been a difficult nine years since the group was formed; Chrysler was valued at £18bn back in 1999 and is worth only £4.66bn today.

Daimler Chrysler has given some insight into the reasons behind the sale, citing a lack of future synergies and cost-savings: “The synergies possible between Mercedes-Benz and Chrysler have been fully utilised. Additional potential for collaboration is limited between two businesses operating in such different market segments. The strong volatility and pressure on margins in the Chrysler Group’s North American core market have an increasingly negative impact on DaimlerChrysler’s overall profitability and share-price development.”

Although the newly-formed Daimler AG will continue to work with Chrysler on existing projects, it remains to be seen how the new Chrysler Corporation LLC will manage to fund a new range of platforms. Currently, much of Chrysler’s vehicles use previous-generation Mercedes Benz technology such as the old E class platform for the 300C/Dodge Charger. Clearly this technology will need replacing in the not too distance future.

Significantly, Chrysler’s pension and health insurance liabilities will transfer to the new Cerberus-owned company. Analysts value this liability at around $19bn (£9.6bn) alone.

Cerberus chairman John W. Snow said: "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 US manufacturing and of the US auto industry. Most importantly, we believe in Chrysler.

"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."

DaimlerChrysler chief Dieter Zetsche was bullish about Daimler’s goals for the future: "We will be the leading manufacturer of premium products and a provider of premium services in every market segment we serve worldwide. And we will pursue our commitment to excellence based on a common culture, a great heritage of innovation and pioneering achievements and – with Mercedes-Benz – the strongest automotive brand in the world."

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