Harley Capital Management

Hard Part Begins for Cerberus

After the intensified bidding rivalry to win over Daimler’s Chrysler Group, the Cerberus Capital Management comes as the mighty suitor is now burdened with the responsibility of bringing the ailing automaker back into the black. Now, the hard part begins for the private equity firm.

After assessing three bids for Chrysler over the past 90 days, Daimler chose Cerberus over competing offers from Canadian auto supplier Magna International Inc. and a powerhouse private equity team of the Blackstone Group and Centerbridge Partners. The decision was made over a couple of weeks when Daimler entered into exclusive negotiations with the New York-based firm. But the deal has not become final until Saturday when Daimler CEO Dieter Zetsche and Chrysler Chief Executive Tom LaSorda met in Germany with Ron Gettelfinger, the president of the United Auto Workers (UAW).

The announcement that Monday that private equity giant Cerberus is acquiring Chrysler for $7.4 billion etches the beginning of another grand experiment in the global automotive realm. As it has many times in its 82-year history, Chrysler once again riveted the industry with the formal announcement of its divorce from its German partner. Nine years after it was swallowed up in a German buyout, the former Chrysler Corp. will once again get a chance to prove it can succeed as an independent automaker. But before this, Cerberus must first serve as a catalyst for Chrysler.

Where Chrysler struggled as a division of Daimler, the smallest of Detroit's Big Three will now forge ahead as a private company backed by one of Wall Street's most aggressive investment firms. But even as the dust sinks on the historic divorce of Daimler, the future prospects for Chrysler are still ambiguous. Little is known of Cerberus' internal plans for the American automaker, but Cerberus appears to stand solidly behind LaSorda and his Chrysler management team for now. "We believe in Mr. LaSorda's plans," Snow said. "We want to support those plans going forward."

"What Chrysler needs now is focus and capital, and they'll have both," said Harley Shaiken, a veteran labor professor at the University of California-Berkeley. "But the real test is yet to come," he concludes of the situation.

After accepting that the sale of Chrysler was an inevitable end, Gettelfinger gave the UAW's endorsement to the deal. The said deal calls for Cerberus to own 80.1 percent of Chrysler and the German automaker to retain a 19.9 percent stake.

Analysts in the industry had expected the UAW to contest a takeover of Chrysler by private investors. But Gettelfinger said last Monday that he never considered fighting the deal once DaimlerChrysler was committed to selling. "Once that decision has been made, you have to deal with the cards that were dealt," Gettelfinger told reporters at a media briefing. Gettelfinger said that he was given unspecified "commitments" by Zetsche and LaSorda about the future of its unionized labor force. "We have been led to believe that they (Cerberus) are very concerned about the American auto industry," the union leader said Monday. "We're going to get confirmation of that tomorrow."

In an e-mail message sent to employees Monday, LaSorda said that Cerberus is "the right strategic buyer" for Chrysler going forward. "As a private company, we will be better positioned to concentrate on our long-term plan for recovery, rather than on short-term results," he said.

In Auburn Hills, employees were still absorbing the deal and wondering how life will be different minus Daimler’s guidance. But in the larger perspective, the bigger query is can Chrysler survive? Could the Exedy performance be had in its recuperation? "Private equity has entered many industries, but rarely with a company as iconic as Chrysler," Shaiken said. "Can they make it work? Well, Cerberus has more than $7 billion riding on the outcome and that's a pretty powerful motivation."

About the Author

Mike Bartley, 49, is a professional automotive journalist domiciled in Irvine, CA. He travels from one state to another to cover the hottest auto shows, racing events and automotive revelations. His penned compositions cover press releases, reviews, and suggestions. Where the auto action is, that’s exactly where you can find Mike.

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