Cerberus Seeks To Buy Remainder of Chrysler: A Sale in the Future?

Posted by: David Kiley on September 24, 2008

chrysler

Despite tight-as-a-tick credit markets, Cerberus Capital Management is in talks with Daimler Benz to acquire the 19.9% of Chrysler LLC it doesn’t already own.

Cerberus bought its controlling stake in Chrysler in 2007. Since then, sales at the automaker have precipitously dropped, auto industry sales on the whole have slipped to levels not seen since the 1980s and the forecast for sales and the U.S. economy next year is at least as bleak as this year.

Maybe it is a time to buy.

This statement from Cerberus: “Cerberus confirms that it has approached Daimler about the possible redemption of its 19.9 percent stake in Chrysler. We are currently in discussions. In the event of a successful transaction, all existing industrial relationships between Daimler and Chrysler would continue.”

There are two big reasons for Cerberus to buy the remainder of Chrysler: First, the price will probably never be lower from Daimler, which would like to have the automaker completely off its books. Second, a potential buyer for Chrysler (Renault-Nissan or even a Chinese auto maker), would rather not have Daimler muddying up any negotiations.

By buying the rest of Chrysler, there would be less pressure on Cerberus to offer any financial guidance to the marketplace about revenues or earnings. Because Daimler is publicly traded, the German automaker has to report the progress of its stake in Chrysler. Each quarter and at the end of the year, analysts and media are left to extrapolate those numbers for all of Chrysler.

Daimler-Benz acquired Chrysler in 1998, but endured nearly a decade of heavy losses and distraction before selling it off to Cerberus last year.

Chrysler is in two major deals with Nissan: one that has Chrysler supplying Nissan with a version of its Ram truck that Nissan dealers can sell in a few years; and one in which Nissan will supply to Chrysler a small car based on its Versa subcompact. Sources inside Chrysler, as well as outsiders who are close to management, have said in recent weeks that they would put the chances of an acqusition of Chrysler above 50%. Several point to Renault-Nissan as a logical acquirer, or the automaker most likely to take a large equity stake.

Reader Comments

Dennis

September 24, 2008 10:51 PM

What about Tata? I just read they will be selling Jeeps, possibly in exchange for something electric.

Dr. Charles Laser

September 25, 2008 10:01 PM

I have been wildcatter for 35 years and speak before many business groups. We have enough oil within the U.S. and Alaska without hurting the environment to last hundreds of years. Our studies show that Nevada (which has the two largest oil wells in 40 years) has potential oil reserves or oil columns larger than Saudi Arabia. Studies we conducted in the 80's indicated billions of barrels of oil in Iowa which has never been drilled. I can prove beyond any doubt that man does not cause global warming and all the "green" programs are going to cost the taxpayers far more than conventional oil or natural gas which is cheaper and abundant. I am willing to share my talk backed by scientifc data to the right source, however you can blame liberals and extremist environmentalists for prices that will rise 200 to 300% in the next few years because we cannot get to our own reserves. Most people do not realize that Mr. Boone Pickens will make 2.5 billion dollars at government expense with his windmill scheme which is more costly than natural gas where we now have at least a 113 year supply. Dr. Charles Laser Deerfield Beach, Florida.

howie

September 26, 2008 3:32 AM

Cerberus would be committing Suicide if they sold Chrysler to a foreign company! They want to put Chrysler back in the game as an American Icon. If they even think about selling them to Nissan-renault or China, they'd have millions of Americans Boycotting their businesses! Chrysler must remain a Strong American Company!

Juan

September 26, 2008 5:39 PM

Cerberus can not running Chrysler .
I think the only way is to union with one chinese company.

Bomberpete

September 26, 2008 5:50 PM

Get Real Howie.

If so many Americans want Chrysler to remain American, why aren't they even considering their vehicles?

Answer: Because they're either worst in class POS or ridiculous gas guzzlers.

Cerberus will do whatever it takes to get them out of this mess. "Strip and Flip" is the only option they ever really had.

Al

September 27, 2008 11:54 AM

Amen to that Howie. There is a way to offer quality products and restructure dealer network. Build cars for others and have others build cars for you. I must add: Made in USA = Strong Economy. Limit purchasing of products that are Made outside of USA!

Ron

September 27, 2008 2:50 PM

Howie you better wake up. Cerberus is about making money and Chrysler is not making money. No one is going to cry foul when Chrysler is sold again. If someone wants to buy a company that can not compete in the globle market, GOD bless um. I work for Chrysler Financial and it is like the movie the Departed. I know I will be killed(fired), I just don't know when or who will do it.

Mostly

September 27, 2008 7:57 PM

Sorry Howie, but with the state of the current economy consumers just don't have it in them anymore to boycott and most don't really care about what happens to some little car company in Detroit. When was the last time a big company changed its ways because of a boycott.

Bubba

September 28, 2008 6:35 PM

Fact Check, Mr. Kiley - Chrysler was the world's most profitable automaker at the time of the "merger of equals" and provided the bulk of Daimler Chrysler's profits for the first 2 years of its existence. And while there were significant losses in the 2001 timeframe and immediately preceeding the sale to Cerberus, the Chrysler Group was profitable for much of the period in between. I suppose you might consider running a successful company into the ground a "distraction", but it was one that was well-deserved considering Daimler's arrogance and incompetence in understanding the mainstream U.S. car market.

Tim

September 29, 2008 8:20 AM

Cerberus has always done this. Buy a company, fix it up a bit and sell it. It's a great business plan. You're in it for the short term and make huge profits. Nissan is a great company and outside of Detroit most people wont care. China on the other hand... but what does Cerberus care? They'll be out. They'll have their money and they'll probably be driving BMW's.

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