Following the decision of DaimlerChrysler to offload Chrysler Group, it will go back to being Daimler, and its presence in the US will minimize virtually overnight. Without Chrysler’s presence, the company has one plant in the US, one major office in Montvale, and a few smaller offices spread around the nation. With only its Mercedes-Benz luxury brand, the firm will slip from being the third or fourth-largest car seller in the US to a position depending on the performance of the sale in the rest financial year. Recently, the automaker has announced that Mercedes reported $1 billion in earnings for the first quarter, while Chrysler lost almost $2 billion, largely due to its restructuring.
DaimlerChrysler is selling its 80.1 percent stake of Chrysler to Cerberus Capital Management, a private equity firm that specializes in attempting to turn around firms wobbling on the threshold of bankruptcy. However, Daimler has assured to invest much of that money back into Chrysler and Chrysler Financial to help fund the present restructuring, to buy back all of Chrysler’s bonds, and to invest in research and development.
When all is said and done, it will cost DaimlerChrysler more than $500 million to shed Chrysler. But the firm will no longer have Chrysler’s $18 billion in pension and health care liabilities on its accounts.
In the meanwhile, leaders of the soon-to-be-independent Chrysler Group and its private-equity buyers launched a campaign to secure support from rank-and-file workers and union leaders. Cerberus Capital Management founder Stephen Feinberg offered assurances that there is plans of immediate job cuts beyond 13,000 previously proposed by the company. That received applause from one key labor leader, Canadian Auto Workers union leader Buzz Hargrove, who earlier expressed opposition to a private-equity takeover. At the same time, UAW chief Ron Gettelfinger, who also had before expressed apprehension about a potential private-equity buyer for Chrysler, said he supported the deal.
On the other hand, doubts have started to emerge that whether the US based company can return to profitability after being divested. Some analysts are of the view that the Daimler Chrysler merger proved to be unsuccessful due to the fact that Chrysler’s production costs are too high. The high costs largely stemmed out from overly liberal health and retirement benefits paid to Chrysler’s 50,000 employees who are members of the UAW.
According to an estimate, Chrysler loses $1,500 on every car it produces. And now when these losses will not be covered by a larger company there are high chances that if the union acts tough and Chrysler might run out of money to intensify the problems further. Cerberus has a character of reducing costs and benefits and then selling off restructured companies.
