Chrysler is on verge of being sold to equity firm
Automaker DaimlerChrysler is expected to announce as early as today that it is selling its troubled U.S. auto division -- home to the Jeep Cherokee, the Chrysler 300 and the Dodge Ram pickup -- to a New York private equity firm.
Executives at the Stuttgart, Germany-based automaker on Sunday declined to confirm the sale of Chrysler Group, and talks were continuing. But company sources familiar with the negotiations said the outline of a deal had been struck with Cerberus Capital Management, whose investment portfolio includes such names as Mervyn’s department stores and Albertsons supermarkets.
Terms of the proposed deal were not available. Auto industry insiders have been speculating for weeks about how much Chrysler would sell for and who would want it at a time when the domestic automobile industry is struggling.
“I don’t envy whoever takes over Chrysler, but presumably they have a plan that can turn it around,” said auto industry analyst David Healy of Burnham Securities. “It’s going to take a long period of time and a lot of cash.
“I wonder if they’re biting off more than they can chew.”
DaimlerChrysler has been looking to unload its struggling U.S. operations for months. Shareholders have complained that Chrysler’s troubles were a drag on the company’s flagship Mercedes-Benz nameplate.
Inking a deal with Cerberus would end an auction process that drew interest from several bidders, including Beverly Hills billionaire Kirk Kerkorian.
A sale also would mark a new chapter in the history of the company that has been both an icon of the American auto industry and a symbol of the decline of the nation’s industrial prowess.
Founded in 1925 by Walter P. Chrysler, the company grew into one of the Big Three, along with General Motors Corp. and Ford Motor Co. But advancing competition from foreign automakers in the 1970s drove Chrysler to the brink of bankruptcy before it was revived by government loan guarantees and the strenuous leadership of Lee Iacocca.
Chrysler is saddled with more than $18 billion in unfunded retiree healthcare obligations. The Wall Street Journal, citing unnamed sources, said that under the proposed deal with Cerberus, a new company would be formed that would absorb those pension and healthcare costs and that would be partly owned by DaimlerChrysler.
In any event, Chrysler isn’t expected to fetch a price approaching the $36 billion the German automaker, then known as Daimler-Benz, paid for Chrysler in 1998.
Chrysler, based in Auburn Hills, Mich., has fallen to fourth place in the U.S. market and lost $1.46 billion last year. Like Ford and GM, Chrysler has lost market share to Japanese automakers as customers switch from pickups and SUVs to more fuel-efficient cars.
Chrysler, which has announced plans to cut 13,000 jobs, or 16% of its workforce, is expected to seek steep concessions from the United Auto Workers when talks on a new contract begin this summer.
Ballooning pension and healthcare costs have put U.S. automakers at a disadvantage to their Asian rivals. The so-called legacy costs add $1,500 to $1,600 to the price of a vehicle, said David Cole, director of the Center for Automotive Research outside Detroit.
“There’s a lot more healthcare in a car than there is steel,” he said.
“Unless they solve this problem, they really face the death of a thousand cuts. They’re not competitive.”
Analysts said the acquisition of the company by a private equity firm could stiffen the union’s already strong aversion to wage and benefit cuts.
“The union will be very skeptical about any proposal that would have Cerberus take over liabilities unless there’s an enormous amount of cash involved,” Healy said.
“The union in the past has made statements that they view these investment companies as strip and flip.”
UAW officials didn’t return calls seeking comment Sunday.
Sources close to the talks said Chrysler Chief Executive Tom LaSorda would continue to run the company if Cerberus bought it. Former Chrysler Chief Operating Officer Wolfgang Bernhard, recently hired by Cerberus as an advisor, would be on the board, the sources added.
Bernhard is credited with having helped launch several recent Chrysler showroom successes, including the popular Chrysler 300 sedan and the new Dodge Charger.
A key concern, Catherine Madden of consulting firm Global Insight said, is whether a stand-alone Chrysler would continue to share design and production expertise with its former parent. Several of Chrysler’s current models, such as the Crossfire sports car and the 300, use previously developed Mercedes engineering and components.
As for Daimler, shedding at least some of the responsibility for Chrysler’s financial woes “will allow them to refocus on what they’re good at -- producing luxury cars,” said Jesse Toprak, an analyst with online auto data firm Edmunds.com.
DaimlerChrysler Chairman Dieter Zetsche said in February that company executives “do not exclude any option” in trying to rescue sagging profit. That was widely interpreted as meaning that Chrysler was on the auction block.
Canadian auto parts supplier Magna International Inc. had been considered a possible buyer on the strength of its relationship with Chrysler.
Two other private equity firms, Blackstone Group and Centerbridge Capital Partners, headed a consortium of investors that submitted a bid.
Kerkorian, who acquired a sizable stake in GM only to sell it last year for a $100-million profit, made a $4.5-billion all-cash offer for Chrysler last month.
Representatives of Kerkorian’s investment company, Tracinda Corp., met with Chrysler workers who wanted to form an employee group to buy the company.
However, Kerkorian’s efforts to open a dialogue with DaimlerChrysler appear to have foundered.
Kerkorian, joining with former Chairman Iacocca, had launched an unsuccessful $22.8-billion takeover bid for the automaker in the mid-1990s.
Tracinda couldn’t be reached for comment Sunday night.
martin.zimmerman@latimes.com
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Notable dates at Chrysler
1925: Chrysler founded by Detroit industrialist Walter P. Chrysler.
Nov. 28, 1978: Lee Iacocca hired as president and CEO of Chrysler Corp. For the year, Chrysler reported a $205-million loss.
1979: After teetering on the edge of bankruptcy, the company was rescued by Congress and President Carter.
Jan. 7, 1980: Carter signs Chrysler Loan Guarantee Act, which provides Chrysler with $1.5 billion in loan guarantees.
1983: After public campaigning by Iacocca, sales improve dramatically with the debut of the well-received K-car platform and the creation of the modern minivan.
August 1983: Chrysler pays off loans seven years early.
1984: Chrysler reports earning $2.4 billion for the year.
1987: Chrysler purchases American Motors Corp., which nets the company the Jeep brand.
Jan. 1, 1993: Iacocca becomes chairman of executive committee. He retires that year.
May 7, 1998: Daimler-Benz announces merger with Chrysler.
Jan. 29, 2001: DaimlerChrysler announces plans to cut 26,000 jobs at financially troubled Chrysler Group and idle six plants.
Feb. 14, 2007: Chrysler says it will cut 13,000 workers during the next three years. DaimlerChrysler says it won’t rule out a possible sale of the U.S. operation.
April 5: Billionaire investor Kirk Kerkorian offers $4.5 billion in cash for Chrysler.
May 13: Private equity firm Cerberus Capital Management said to be near a deal for Chrysler.
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Sources: Associated Press, Times research
