Blogs Speak: Chrysler Takeover

The blogosphere has many reactions to the Chrysler sale, but everyone agrees that they are happy to see Daimler exit

Nearly a decade after Mercedes' parent company Daimler-Benz acquired Chrysler for $36 billion, it agreed to sell the struggling auto maker to private equity firm Cerberus Capital Management for a mere $7.5 billion. Cerberus will, however, assume Chrysler's $18 billion in retirement and health-care liabilities, which had been seen as a major obstacle to a potential sale.

With those liabilities removed, Daimler will be able to end a partnership that has been problematic from the start. It will have a stake in Chrysler's future, though. DaimlerChrysler (DCX) will retain 19.9% of Chrysler, while an affiliate of Cerberus will acquire 80.1% of Chrysler. Daimler will also lend Chrysler $400 million. Tom LaSorda, Chrysler's chief executive, would remain at his post. The new company will be called Chrysler Holding and will be private.

The reaction on Wall Street has been mixed as analysts and industry experts try to figure out what Cerberus' plans are. In Frankfurt, DaimlerChrysler's stock leapt 7.8%, or €4.73, in early trading to but then eased back. In New York, shares were up only 1.68% to $83.38. Cerberus, a notoriously private company, is famous for slashing costs (see BusinessWeek.com, 10/3/05, "Cerberus Who?")and (see BusinessWeek.com, 4/24/06, "Cerberus to KKR: Eat Our Dust") The main questions surrounding the deal are how Cerberus will handle the United Auto Workers and what it can do to the aging Chrysler product lines to boost sales. Chrysler's other brands include Dodge and Jeep.

What's Best for the Union

But the Internet, particularly the blogosphere, is crackling about the news. A Chrysler sale has been widely anticipated ever since Daimler chief Dieter Zetsche admitted in February, "all options were on the table" about the company's future after it lost $1.5 billion dollars last year. But now that a winning bid has been accepted, it's time to pull it apart (see BusinessWeek.com, 2/14/07, "Dr. Z's Painful Cure for Chrysler").

One of the most interesting posts appeared on the blog, AFL-CIO which stated that the Chrysler deal was the best one for the United Auto Workers. It quotes UAW head Ron Gettelfinger, who has had an adversarial relationship with Chrysler in the past, as saying, "We are satisfied now that the decision has been made so that our membership and management can focus on designing, engineering, and manufacturing the finest quality products for the future success of the Chrysler Group."

One blogger on Allpar.com asks the right question, "Chrysler's Been Sold—Now What?" But he seems a bit too optimistic perhaps that with the Germans gone, LaSorda and his team will be able to fix Chrysler without big job cuts and factory closings. Since cost cutting has been Cerberus' modus operandi, at least so far, it remains to be seen whether it will be able to do things another way.

Fingers Crossed

However, as the Allpar blogger points, all of Chrysler's factories but one are working at capacity.