By Todd Lassa
Dieter Zetsche & Co. have finally given up on Jurgen Schrempp's "merger of equals" ruse. DaimlerChrysler sold 80.1 percent of Chrysler to private equity firm Cerberus, with no input from the Americans and no money for the Germans.
After nine rocky years of marriage, Daimler will pay nearly $1 billion to unload its American patient. Where does Cerberus's $7.4 billion payment go? Five billion dollars goes directly into Chrysler Holding LLC, the new, private automaker. It pays off debt. Another $1.1 billion goes into the financial services business "to strengthen the equity base of both businesses."
DaimlerChrysler says it gets the remainder, $1.3 billion, but then grants a $400-million loan to Chrysler. And when the deal is finished this autumn, DaimlerChrysler pays another $1.6 billion for the "anticipated negative cash flow"-the money it loses in the four or five months it takes to complete, which means Daimler expects to pay $877 million to get rid of Chrysler. It can't pay it quickly enough. The Daimler board voted to approve the plan days after it was announced.
BRIEF HISTORY OF A BRIEF MARRIAGE: Daimler-Benz bought Chrysler Corporation in 1998 for $36 billion in a convoluted stock-swap deal. Many Americans were aghast, and Chrysler chief Bob Eaton acted indignant all the way to the bank with his buyout package. Chrysler, flush with cash and profit from selling boatloads of trucks and Jeeps, didn't know how to make money on cars. As Chrysler was falling apart in 2000, Daimler sent in Dieter Zetsche, who oversaw its turnaround. Thanks largely to its rear-drive LX sedans, Chrysler turned a profit of more than $2 billion in 2004 and a $3.4-billion profit in 2005, when GM, Ford, and even M-B struggled. Chrysler's success was short-lived, and, in 2006, with Mercedes profits back up and Zetsche back in Stuttgart, Chrysler Group lost $1.5 billion. Its prospects for 2007 look even worse, with a first-quarter loss of nearly $2 billion.
ANYTHING GOOD COME FROM IT? Chrysler 300/Dodge Magnum/Charger and 2009 Challenger are largely possible thanks to last-generation Mercedes E-Class components. DaimlerChrysler first said there would be no obvious parts sharing, just hidden components like electrical systems. Then it launched the LX cars and the Chrysler Crossfire, and this model year it began to install Mercedes diesels in Jeeps. When the divorce was announced, Zetsche said the two automakers didn't reach the expected levels of synergy. Clearly, the two sides never worked as a team.
FUTURE "SYNERGIES": The $3 billion Phoenix V-6 engine for 2010 continues. Mercedes will continue to supply diesel V-6s to Chrysler, and the two will continue work on a two-stage hybrid system. Chrysler's new best friend is Chinese automaker Chery.
SO HOW DOES THE REST OF 2007 LOOK? We may never know. Under Cerberus, Chrysler Holding is a private company and doesn't have to publicize quarterly or annual profit/loss.
WHAT ABOUT THE STRUCTURE OF THE COMPANY? Chrysler CEO Thomas LaSorda says no changes will be made to Chrysler, Dodge, and Jeep divisions, union contracts will be honored (United Auto Workers and Canadian Auto Workers will be in negotiations with Chrysler as you read this) and no more than the 13,000 layoffs announced in February will be made.
WHAT COULD REALLY HAPPEN? Current plan is to cut nearly 10 percent of its dealers, about 400 of them. If Cerberus can figure out how to cut say, half of its dealers, Chrysler might be in a position to combine Chrysler/Jeep dealers with Dodge and cut badge-engineered redundancies.
WHAT ABOUT WOLFGANG BERNHARD? He's a close friend of LaSorda and continues to work for Cerberus. LaSorda says he'll count on Bernhard for advice, but there are no plans for him to work directly for Chrysler Holding. We're having a hard time believing he's going to continue to be such a good friend.
SIGN OF THE DOG: No three-headed mutt guarding the gates of hell. Chrysler will revise its Pentastar emblem for its corporate symbol. And it'll introduce a fifth model at the Brampton, Ontario, LX assembly plant.
PROGNOSIS: Cerberus's habit of stripping a company and selling off parts won't come easily with Chrysler, thanks to dealership and union contracts. But there's continuing industry overcapacity putting pressure on pricing and too many models. Bottom line: The Big Three need to shrink or die, and Chrysler now is the most likely for serious cuts.