Chrysler’s buyer claims it was misled

Relations between Chrysler’s current and former owners turned ugly Wednesday when private equity firm Cerberus Capital Management accused Daimler of “intentionally and materially” misleading Cerberus before the German automaker sold Chrysler last year.

In dueling news releases, Cerberus claimed that Daimler breached the sale contract, while Daimler called the allegations absurd.

The unusual public feud is likely to be a prelude to arbitration or a lawsuit over the sale, said Peter Henning, a former Securities and Exchange Commission attorney who teaches at Wayne State University Law School in Detroit.

Cerberus accused Daimler of misrepresenting changes in underwriting practices for vehicle financing and leasing. That means Cerberus is alleging that Daimler inflated the value of its lease and loan portfolio by lending money to buyers who didn’t meet its lending standards, Henning said.

By making the allegations public, the New York private equity firm appears to be conceding that its Chrysler investment hasn’t gone well.

“They expected Chrysler to be one thing, and in fact, it turned out to be something quite different,” Henning said. “It’s simply a statement that this company was a lot worse off than Cerberus thought when they got into the deal.”

Both sides said they were trying to negotiate a settlement, but Cerberus said Daimler had “refused to recognize the gravity of the claims relating to its deliberate conduct that resulted in the impairment of Chrysler’s business.”

Daimler spokesman Han Tjan said Cerberus performed due diligence before the sale and was given all the information it needed to close the deal.

“We reject these allegations as being completely without substance,” he said.