Friday, May 18, 2007

Chrysler Experience Wasn't `Failure,' Zetsche Says (Update2)

By Jeremy van Loon and Greg Miles

May 18 (Bloomberg) -- DaimlerChrysler AG Chief Executive Officer Dieter Zetsche said his time leading Chrysler, the carmaking division being sold to Cerberus Capital Management LLC, wasn't a ``failure.''

Zetsche ran Chrysler between November 2000 and September 2005, and ``those five years were the best in my professional, even personal, life and I don't consider that as a failure,'' the CEO said in an interview today at the Stuttgart, Germany, headquarters of DaimlerChrysler, the world's second-biggest maker of luxury cars.

The 1998 merger of then Daimler-Benz AG and Chrysler Corp. didn't destroy $36 billion because Daimler didn't use cash to buy Chrysler, instead merely trading shares, he said.

Zetsche on May 14 announced the sale of Chrysler to Cerberus, which will invest $7.4 billion as part of the transaction, in an effort to minimize the risk to profit growth. Zetsche today said he decided to sell Chrysler because, even if the U.S. division reaches a possible profit margin of 5 percent, the unit would still ``drag down'' the rest of the company.

``Chrysler had a couple of good years on the strength of the 300C in the 2003 to 2005 time frame,'' said John Novak, an analyst at Morningstar Investment Services of Chicago. ``Last year, they ran into problems with inventory management. Their lineup looks relatively weak.''

Shares Rise

Shares of DaimlerChrysler in Frankfurt rose 32 euro cents, or 0.5 percent, to 64.40 euros. The stock has gained 58 percent over the past 12 months, beating the 24 percent increase in shares of competitor Bayerische Motoren Werke AG. DaimlerChrysler stock on the merged company's first day of trading Nov. 17, 1998, cost the equivalent of 71.22 euros.

The perceived risk of owning debt sold by DaimlerChrysler today extended yesterday's decline. Credit-default swaps based on 10 million euros ($13.5 million) of DaimlerChrysler bonds has fallen 60 percent over the past year to about 23,000 euros today, according to Bloomberg data. A decline in the price of the contracts indicates an improvement in the perception of creditworthiness.

First-Quarter Loss

Chrysler posted a loss in the first quarter of 1.49 billion euros compared with a profit of 641 million euros a year earlier. The loss includes reorganization expenses of 941 million euros.

When asked what the risk was to Daimler in the event of a possible bankruptcy of Chrysler, Zetsche said ``basically none.''

Chrysler since 1998 has posted annual profits of as much as $5 billion and losses almost as large, increasingly becoming the target of investors' ire. Its latest tailspin marked a third descent into losses since Lee Iacocca saved the automaker from bankruptcy 25 years ago.

``You pay lawyers to look at scenarios,'' Zetsche said. ``Chrysler will be fine and a very good company in the future.''

Chrysler CEO Tom LaSorda is in the midst of a restructuring designed to reduce costs, including shedding 13,000 jobs and closing a Delaware manufacturing plant by 2010. The fourth- largest U.S. carmaker has a target of earnings before interest and tax as a percentage of sales of 2.5 percent by 2009.

The division last year lost 500 million euros last year and ceded market share to Toyota Motor Corp. while relying too much on the stagnant North American market. Zetsche failed to keep the U.S. carmaker profitable after completing a reorganization he began as head of the business.

Ranking Fourth

DaimlerChrysler was formed when Stuttgart-based Daimler-Benz bought Auburn Hills, Michigan-based Chrysler for $36 billion in what the German carmaker billed as a ``merger of equals.'' Chrysler now sells fewer cars in the U.S. than General Motors Corp., Ford Motor Co. and Toyota.

Under the agreement announced this week, New York-based Cerberus will buy 80.1 percent of Chrysler, with Daimler holding the remaining 19.9 percent, and a new company will be formed to be called Chrysler Holding LLC. The sale will be completed in the third quarter.

Of Cerberus's total contribution, $5 billion will flow into the industrial business of Chrysler and $1.05 billion into Chrysler's financial services business, while Daimler gets the balance. Daimler will end up paying $650 million in the transaction, including granting a loan of $400 million to Chrysler.

Chrysler-Mercedes Projects

Existing projects with Daimler's Mercedes Car Group unit will be continued and a joint council, consisting of management board representatives, will be formed to discuss cooperation.

``There maybe was a way it could have worked,'' said David Herro, who manages about $70 billion as chief investment officer of international equities at Chicago-based Harris Associates LP ``And here's another try. Chrysler does have potential.''

Mercedes is targeting 5 percent to 6 percent potential sales growth, Zetsche said. The chief executive didn't exclude the possibility of future acquisitions or partnerships. The Mercedes Car Group ranks second worldwide behind Munich-based BMW in making luxury vehicles.

The company's current market value of 66.3 billion euros protects it from a takeover, Zetsche said. Daimler is estimated to have a fair value of 70 billion euros to 90 billion euros by analysts, he said.

DaimlerChrysler's largest shareholders, including the Kuwaiti investment authority, which owns about 7 percent of the carmaker, would step in to help in the event of a hostile takeover, Zetsche said, adding that he's ``happy'' with the current shareholder structure. He didn't exclude the possibilities of changes to that structure in the future.

Cerberus vows patience

Snow sees long-term value, backs Chrysler's redo plan

David Shepardson / Detroit News Washington Bureau

WASHINGTON -- Cerberus Capital Management LP Chairman John W. Snow said the private-equity firm will take a hands-off approach to running Chrysler and has no timetable for demanding the automaker make money.

Snow strongly endorsed Chrysler's management team, including CEO Tom LaSorda, and said he believes the automaker's turnaround plan will work.

Auburn Hills-based Chrysler, which lost $680 million last year and $2 billion in the first quarter this year, is eliminating 13,000 jobs, closing one factory and cutting shifts at several more to restore profits in 2008.

"We're not putting a clock on it," Snow said in a telephone interview Thursday from his home near Richmond, Va. "We're patient. We can take a long view. We can look over the horizon. So next quarter's results or the quarter after that aren't what gets our primary attention.

"What gets our primary attention is, 'Are we building a better business?' "

On Monday, DaimlerChrysler AG said it would sell an 80.1 percent stake in Chrysler to Cerberus in a $7.4 billion deal that's expected to close later this year. The German automaker will retain a 19.9 percent stake as it unwinds the landmark1998 merger that joined upscale Mercedes-Benz with mass-market Chrysler.

Cerberus has a number of automotive assets and hasn't been afraid to reshuffle management at underperforming businesses.

A former railroad executive and one-time Bush administration Treasury secretary who joined New York-based Cerberus in October, Snow said Cerberus is considering other automotive deals, but he declined to be specific. Nor would he discuss the firm's planned withdrawal of its $1.7 billion bid for a stake in bankrupt supplier Delphi Corp.

"We're acquiring a lot of auto assets because we think the auto industry has been undervalued, but these are stand-alone assets. We think it's a good sector that's poised for better results."

Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission, said he expects Cerberus to maintain Chrysler's management team. But he predicts the private-equity firm will be eager to see Chrysler demand cuts in labor costs from the United Auto Workers during contract talks this summer.

"The basic problem at Chrysler is not the management and it's not the engineers," Morici said. "The problem is the labor contracts. You can't just dump these people and have three or four talented guys at Cerberus running the place It takes a lot more than that to run a company."

Cerberus, founded as an obscure $10 million fund in 1992 that mostly purchased debt, has in recent years bought everything from car rental companies to smaller auto suppliers and now has $22 billion in assets. It owns stakes in Air Canada, Mervyn's department stores, Albertson's grocery stores and Italian shoemaker Fila. It is part of a wave of private-equity funds increasing investments in the auto industry and across the economy.

Last year, Cerberus paid $14 billion for a majority interest in GMAC, the mortgage and lending business previously wholly owned by General Motors Corp. It recently replaced the CEO of one GMAC unit, although the new CEO came from within the finance company.

Cerberus recently agreed to buy the assets of Tower Automotive Inc., a bankrupt supplier in Novi, for $1 billion. It also owns Guilford Mills, one of the largest automotive seating suppliers in the United States, as well as suppliers in Michigan and Germany.

Snow said Chrysler would not be required to buy parts from Cerberus-owned suppliers if it found quality, competitively-priced products elsewhere, but he said it isn't clear whether Cerberus will look for synergies between Chrysler and its other auto companies. "It's too early to say," he said. "That would only be done with deep consultations and thoughts of the management team.

Snow said Cerberus' Chrysler investment is meant to "help turn the company around, produce better results and reward, ultimately, our investors."

Private equity offers Chrysler "the best chance" to restore profits, he said.

Snow emphasized that LaSorda would be accountable for the results, but Chrysler would be able to tap the talents of a team of Cerberus executives with experience turning companies around.

"(The Cerberus) model -- which gets real close alignment between managers and owners -- incentivizes the process in ways that produce good, strong results," Snow said.

Snow sidestepped several questions, including who would comprise the board of directors for Chrysler, which will be renamed Chrysler Holdings LLC, and whether LaSorda would report to a specific Cerberus executive.

But in an interview Thursday on WJR Radio, LaSorda said Wolfgang Bernhard will be "a direct interface to the investors and to us."

Bernhard, who played a leading role in Chrysler's turnaround early this decade, is among several former auto executives now with Cerberus.

The firm's auto team is led by former Ford Motor Co. senior executive David Thursfield and includes ex-Ford sales chief Robert Rewey and Gary Dilts, Chrysler's former top sales executive.

Despite the myriad challenges facing Detroit automakers in the brutally competitive global auto industry, Snow said Cerberus is optimistic about the sector and Chrysler, especially as a private company.

"Often, managements find themselves constrained by public markets that don't let them take the longer view," he said.

"Companies find themselves in circumstances where the investment required to pursue long-term, best strategies for the company gets compromised by the need for short-term results. We will not let that happen."

Archer Fastest in SPEED GT Morning Practice at Miller Motorsports Park

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No 5 MOPAR/Autohaus Motorsports Dodge Viper of Tommy Archer - Photo credit ©SCCA/Mark Weber
TOOELE, Utah (May 17, 2007) - Tommy Archer, of Duluth, Minn., led the field in morning practice for Round Three of the SCCA Pro Racing SPEED World Challenge GT Championship, part of the Larry H. Miller Dealerships Utah Grand Prix at Miller Motorsports Park. Doug Peterson, of Bonita Springs, Fla., and Eric Curran of East Hampton, Mass., completed the top three.

Driving the No. 5 MOPAR/Autohaus Motorsport Dodge Viper, Archer's fast lap of 2:56.616 (91.439 mph), was more than 1.5 seconds quicker around the 4.486-mile, 24-turn road course than Peterson, but Archer was quick to play down the large deficit.

"Looking at last year's times, the pole is probably going to be in the 2:55's," Archer said. "But nobody wants to come out in the first practice session and go that fast. We went fast compared to what everybody else did, but I'm pretty sure if everyone else was going fast we probably wouldn't be the quickest car out there."

"This track is 4.4-miles and 24-turns, and there are lots of different types of turns. There's so much give and take that you have to decide which turns you want to give up to take the good ones. We're working on that right now. Last year we didn't have the greatest race here because of other issues and I'd like to come out of here with a good finish."

Peterson led a pack of six cars in the 2:58 range with a 2:58.130 (90.661 mph) behind the wheel of his No. 87 3-Dimensional Services/LG Motorsports Chevrolet Corvette.

Current point leader Curran finished the session third-quick in his No. 30 Whelen Engineering Chevrolet Corvette with a time of 2:58.194 (90.629 mph).

After pacing the SCCA SPEED Touring Car practice, Randy Pobst of Gainesville, Ga., found himself fourth fastest in the SCCA SPEED GT morning practice. The No. 22 K-PAX Racing LLC/Jim Haughey Porsche 911 GT3 pilot turned a fast time of 2:58.212 (90.620 mph)

Lou Gigliotti, of Dallas, Texas, completed the top five in his No. 28 LG Pro Long Tube Headers Chevrolet Corvette with a time of 2:58.416 (90.516 mph).

The second SCCA SPEED GT practice session will take place this afternoon at 4:55 p.m. (MDT). Qualifying will commence at 11:30 a.m. (MDT) on Friday. Saturday's Round Three race is scheduled to go green at 9:45 a.m. (MDT).

For all the SCCA Pro Racing SPEED World Challenge event coverage from Miller Motorsports Park, including live timing and lap notes, visit

TOOELE, Utah - Results from the first practice for Saturday's SCCA Pro Racing SPEED World Challenge Round Three race, part of the 2007 Larry H. Miller Dealers Utah Grand Prix at Miller Motorsports Park, with position, car number in parentheses, driver, hometown, car, fastest lap time, and speed in miles per hour.

1, (5), Tommy Archer, Duluth, Minn., Dodge Viper, 2:56.616, 91.439.
2, (87), Doug Peterson, Bonita Springs, Fla., Chevrolet Corvette, 2:58.130, 90.661.
3, (30), Eric Curran, East Hampton, Mass., Chevrolet Corvette, 2:58.194, 90.629.
4, (22), Randy Pobst, Gainesville, Ga., Porsche 911 GT-3, 2:58.212, 90.620.
5, (28), Lou Gigliotti, Dallas, Texas, Chevrolet Corvette, 2:58.416, 90.516.
6, (82), Michael McCann, North Canton, Ohio, Dodge Viper, 2:58.560, 90.443.
7, (31), Sonny Whelen, Old Saybrook, Conn., Chevrolet Corvette, 2:58.830, 90.307.
8, (8), Andy Pilgrim, Boca Raton, Fla., Cadillac CTS-V, 2:59.207, 90.117.
9, (14), James Sofronas, Newport Beach, Calif., Porsche 911 GT-3, 2:59.542, 89.948.
10, (99), Jeff Courtney, Slinger, Wis., Dodge Viper, 2:59.699, 89.870.
11, (05), Jason Daskalos(R), Albuquerque, N.M., Dodge Viper, 2:59.752, 89.843.
12, (2), Cindi Lux(R), Aloha, Ore., Dodge Viper, 2:59.878, 89.780.
13, (23), Michael Galati, Olmsted, Ohio, Porsche 911 GT-3, 2:59.926, 89.757.
14, (56), Ritch Marziale, Tempe, Ariz., Dodge Viper, 2:59.935, 89.752.
15, (12), Brian Kubinski(R), Plainfield, Ill., Chevrolet Corvette, 3:00.028, 89.706.
16, (17), Rob Foster, Phoenix, Ariz., Dodge Viper, 3:00.100, 89.670.
17, (13), Bob Woodhouse, Blair, Neb., Dodge Viper, 3:00.193, 89.624.
18, (1), Lawson Aschenbach, W. Palm Beach, Fla., Cadillac CTS-V, 3:00.380, 89.531.
19, (55), Thomas Glenn(R), Phoenix, Ariz., Dodge Viper, 3:04.259, 87.646.
20, (29), Eric Olberz(R), La Canada Flintridge, Calif., Porsche 911 GT-3, 3:04.622, 87.473.
21, (15), Tomy Drissi, Hollywood, Calif., Chevrolet Corvette, 3:05.606, 87.010.
22, (57), Stu Frederick, Del mar, Calif., Dodge Viper, 3:06.194, 86.735.
23, (24), Robb Holland, Denver, Colo., Porsche 911, 3:06.881, 86.416.
24, (6), Jeffrey Robbins(R), Southfield, Mich., Dodge Viper, 3:07.445, 86.156.
25, (34), Tony Gaples, Libertyville, Ill., Chevrolet Corvette, 3:15.455, 82.625.
26, (3), Scotty B. White, Puyallup, Wash., Dodge Viper, no time.
27, (20), Dane Moxlow(R), Grosse Ile, Mich., Pontiac GTO, no time.
28, (79), Joel Feinberg(R), Ft Lauderdale, Fla., Dodge Viper, no time.

What to Expect for Gas Prices...

CALIFORNIA - - If you haven't seen the pattern lately, OPEC and other producing nations want to keep the barrel of oil above or around the 60.00 dollar mark. At this time, with twaddle business sense to the global market, both consumers and businesses cannot bear the cost at this time since the real value of oil is no more than $35-42.00 dollar a barrel without the hype.

In the US as I have been speaking since 03, using the California market as the experimentation region, the major producers will go from one extreme to another in trying to make it happen. As to my earlier comment a couple of years ago, compare the oil market as an analogy to boiling a live frog, which is the consumer. If you don?t understand that analogy, go to Google to find that story how to boil a live frog. I don?t know when it happen back then when FUTURE OIL SPOT now drives the current oil sales, distilled gasoline prices, and so on, but no longer are they using the old market method of SUPPLY & DEMAND.

Well, if you haven?t noticed since the latter part of last year and early part of this year, both distilled and stored inventory are on the rise again. This means the demand of gasoline is not that great, which in turn by the old market, should drop the pricing of both crude and wholesale gasoline; again - - SUPPLY & DEMAND. If this was the case, price of wholesale gas should drop below the 2.00 per gallon mark. This is viewed on long term and not current week-to-week analysis being projected.

This leads me now to believe that the excuses or pattern being seen now is to shutdown some of the largest refineries or cutback again the output of oil. This happened when major producers saw that the prices of crude were dropping to the 40ish dollar range. To prevent this from happening, shutting down with the excuses of early summer maintenance would cutback the distilling of gasoline to three major regions. Thus, driving up the demand for gasoline and the price of oil crude on the FUTURE OIL SPOT market.

The first option is the given one for now since we saw it happened. Though, it didn?t last long when consumers rebelled over a given time with the experimentation. Seeing last week energy analysis report, distilled and oil crude inventory is rising again - meaning the consumers/businesses are fed up with the over inflated prices. That being a fact, here is next scenario - let shutdown another major producing regional refinery to drive back that demand and raise the price of gasoline. Next, cause the same overseas since our current pricing is fixed on speculation. Third, if that fails, major producing exporters will have to cutback again for the third time as to output to keep the inflated oil prices above the 60.00 dollar mark.

The positive from all of this, it drives consumers, energy sectored technologies, and auto manufacture to develop alternative means of propulsion that will be driven by the consumer.

How can we win in this fight against the large oil producing monopolies here in California? Do what I do best…a permanent boycott against the three largest Californian distillates [STANDARD, BP [AMCO], EXXON-MOBIL]: stop purchasing their gasoline. Who is left? Independent producers...

In the end, truth will prevail?.

How Cerberus Makes Its Money on Chrysler

The private equity giant may be sincere in its desire to revive the U.S auto industry, but its real interest is making a lot of money

The early rhetoric about Chrysler's sale to private equity firm Cerberus Capital Management tugs at the heartstrings.

Cerberus Chairman John Snow said in an interview that American manufacturing is vital and that Cerberus would like to play a role in saving it. Sources close to Cerberus founder and CEO Stephen Feinberg, who gives few interviews, say he owns a Ford (F) pickup and has a vision to restore America's prominence in the auto industry. "Speaking as an American, [Feinberg] and I wouldn't be alone in being delighted to see this icon of American industry return to American ownership and thrive," says Snow.

That probably is part of their motivation. But this is Cerberus we're talking about. Its logo isn't a three-headed dog for nothing. Its shareholders are big pension funds that expect returns of 15% or more. So Cerberus will do what it takes to make a lot of money.

That doesn't necessarily mean Cerberus will pull what United Auto Workers President Ronald Gettelfinger weeks ago called a "strip and flip," slashing costs to make quick money and then selling the company.

No CEO Shuffle

In fact, Cerberus could conceivably fetch a fat return on its money by doing very little. Consider Cerberus' low purchase price of $7.4 billion. Lehman Brothers (LEH) analyst Brian Johnson said in a research note that at most $2.2 billion of the purchase price was for Chrysler's carmaking operations. The other $5.2 billion or so bought Chrysler Financial Services, which made about $720 million last year and remains solidly in the black, according to Johnson.

If the restructuring moves that parent Daimler announced in February work, and Chrysler makes $1.5 billion to $2 billion in 2009 like the company said, then Cerberus makes a 68% profit on its investment over about a two-and-a-half-year period. That's at least 27% a year from the car business.

The fact that Cerberus has kept Chrysler's management team on board, including CEO Thomas LaSorda,, suggests that Cerberus thinks the company's current restructuring is enough. "That suggests to me they pretty well buy into LaSorda's turnaround plan," says investor Wilbur Ross, who has successfully bought other industrials like steelmakers and auto parts firms and turned them around. "LaSorda believes that in 2009 they could make $2 billion. If they do, that's already a pretty good return on Cerberus' investment," he adds. (To read more of Ross' thoughts on the Cerberus/Chrysler deal, see, 5/15/07, "Wilbur Ross: 'No Chapter 11 Here.'")

Unloading Liabilities

And that's just on the earnings. Like every private equity firm, Cerberus will eventually sell Chrysler either to the public markets with an initial public offering or perhaps to another automaker. That's where Cerberus may really have something else going for it. When the Big Three sit down this summer to craft a new four-year labor deal, the big item will be walling off Detroit's massive health-care liabilities into a separate fund managed by the union. By the end of the year, the three carmakers will have a collective health-care liability of $120 billion that burns billion in cash and profits every year.

The basic premise is that Chrysler, Ford, and General Motors (GM) would each give the UAW a massive coffer of cash and securities worth, say, 60% to 70% of the liabilities.

If the union agrees, accepts the fund, and takes over management of health care for workers and retirees, that would wipe most of the liabilities off the books of each company. It also would greatly reduce the cash and profit burn. The union can invest the funds so the workers have uninterrupted health-care coverage.

Bad Times for Gas-Guzzlers

This would be a huge boon for Cerberus. They bought Chrysler at a massive discount and might be able to sell it in a few years without the health-care issues that have been a bane for investors. "I'm not suggesting that this would fix these companies, but it's step No. 1," says JPMorgan (JPM) analyst Himanshu Patel. "If you remove health-care liabilities, you remove a cancer within the system that kept a lot of investors away."

There are plenty of things that could trip Cerberus up on its way to making billions off Chrysler. First, Chrysler's business could easily deteriorate further. Gasoline prices have topped $3 a gallon nationally, and about 70% of Chrysler sales come from fuel-hungry pickups, sport-utility vehicles, and minivans. That means market share could continue to slide, and profits from the bulk of Chrysler's lineup could keep slipping.

If that happens, Chrysler may need to do more than just cut one assembly plant and 13,000 jobs, as LaSorda announced in February. It might mean that Chrysler would have to buy out more workers, which could end up costing Cerberus even more for restructuring.

Network Disconnection

Cerberus also wants to spend more on new models, both to get into segments like passenger cars, where Chrysler is weak, and to improve the models they're already selling. Right now, Chrysler spends about $3 billion a year on new products. Cerberus wants to spend more.

Cerberus may also have to spend lots of cash to buy out car dealers and thin Chrysler's bloated network. Cerberus has a credit line of $12 billion and may have to take on debt to truly fix the company.

No one said it would be risk-free. "We believe Chrysler is poised for better results," Snow said, but he conceded that "it won't be easy." No, it won't. But if Cerberus and Chrysler play it right, the deal might work, and there could be big rewards.

This Day in Auo History: 18 MAY

Automobile Quarterly
Automobile Quarterly
This Day in Auto History:

Carl Barker, longtime executive with the Shell Oil Company, is born in Selma, AL
Cannon Ball Baker, driving a Stutz Bearcat, arrives in New York City 11 days, 7 hours and 15 minutes after leaving San Diego, CA, breaking all existing cross-country records
Racer Bruce Halford is born in Hampton-in-Arden, Warwickshire, England
Pierce A Weyl, a design engineer with the Ford Motor Company since 1927, dies
Racer Jim Malloy dies at age 36 from injuries suffered four days earlier during a practice run at the Indianapolis Motor Speedway

Source: Automobile History Day By Day, by Douglas A. Wick

Run-up runs course; DCX shares peak

May 18, 2007

After a tremendous run-up, shares of DaimlerChrysler AG appeared to peak Thursday, as investors have decided that selling off Chrysler was fun, but now it's time to cash out and sell those shares.

Just three months ago, on Feb. 13, the day before DaimlerChrysler AG first hinted the Chrysler Group might be sold, the stock opened at $63.94.

Now that a deal has been announced for private equity firm Cerberus Capital Management to acquire Chrysler, DaimlerChrysler's shares are going for more than $86 -- a 34% increase in just three months.

Kevin Tynan, an analyst with Argus Research, advised his clients to sell now.

"With the German faction of DCX finally casting off the unwanted Chrysler Group, the current price of the shares should encourage investors to take profits and have a good laugh all the way to the bank," he said in a note Thursday.

It appears that the market agreed: After rising 9.7% from last Thursday through Wednesday, DaimlerChrysler shares slipped 66 cents, or 0.8%, Thursday to $86.02.

The sale of Chrysler is a deal that German shareholders demanded for some time. In Germany, it's being called "Daimler's $27.5-billion lesson" -- a reference to the fact that Daimler-Benz AG spent about $36 billion to acquire the Chrysler Corp. in 1998.

Zetsche says Chrysler contributed $11 billion to the company over the past nine years. Through the deal, Daimler will be getting rid of $17.5 billion in estimated health care liabilities for Chrysler workers.

Two Chrysler design vets plan to retire

Two veteran Chrysler designers are expected to announce their retirements today.

Tom Tremont, 57, vice president for advanced design, and Dave McKinnon, 64, vice president responsible for small, premium and family cars, will retire in the next six weeks.

Their departures are unrelated to Chrysler's sale to Cerberus Capital Management this week, Chrysler spokesman Sam Locricchio said. "This is part of a well-thought-through succession plan," in the company's design department, he said.

Tremont oversaw the creation of vehicles including the Dodge Challenger concept car that drew crowds at the 2006 North American International Auto Show in Detroit and the Jeep Gladiator concept pickup. Tremont will retire June 30.

He will be replaced by Brandon Faurote, who has been working in Chrysler's advanced passenger-car design studio. Faurote's résumé includes the Chrysler Firepower and Nassau concept cars.

McKinnon's legacy at Chrysler stretches from the company's original 1984 minivans to the current Chrysler PT Cruiser convertible. He will retire May 31.

Joe Dehner will succeed McKinnon in leading Chrysler car design. Dehner has worked in Chrysler's car and truck design studios on a range of models including the Chrysler Pacifica wagon and Chrysler Airflite concept.

Sale will give Cerberus stake in finance units


GM CEO Rick Wagoner says GMAC and Chrysler Financial might cooperate after Chrysler is sold.

There may be opportunities for financing companies GMAC and Chrysler Financial to cooperate once they share a private equity majority owner, General Motors Corp. Chief Executive Rick Wagoner said Thursday in Detroit.

Private equity firm Cerberus Capital Management, which announced this week its intent to purchase 80.1% of the Chrysler Group, including Chrysler Financial, owns 51% of GMAC. Cerberus bought its majority stake in GMAC from GM late last year. GM owns the rest.

"I think it's possible that there would be opportunities" for Chrysler Financial and GMAC to work together, Wagoner said.

Wagoner spoke to the women's business group Inforum. His comments came as industry watchers speculate about how Cerberus plans to make money from the Chrysler Group and whether the sale might whet private equity appetites to buy other automakers.

Certainly there are "potential synergies" between the two financing arms, Wagoner said, but it's too early to speculate on how the companies would maximize those opportunities.

"Nothing has been specifically presented to us and we haven't developed any ideas," Wagoner said.

BNP Paribas analyst Bradley Rubin expects to see plans for the financial units to cooperate in early 2008.

But he doesn't expect the Chrysler sale to lead to private equity takeovers of GM or Ford Motor Co. For those deals to make sense, he said, the automakers would have to win more union concessions. "I just don't see it," he said.

Wagoner also said he doesn't expect to see a "mad rush" of private equity investors to take over publicly traded auto companies: "I don't see us moving that rapidly to a private ownership structure."

Chrysler sale critics speak out


"Daimler screwed Chrysler royally," former Chrysler Chairman Lee Iacocca writes in BusinessWeek.

    DaimlerChrysler CEO Dieter Zetsche, above, and UAW President Ron Gettelfinger came under fire.

  • photo
  • DaimlerChrysler CEO Dieter Zetsche and UAW President Ron Gettelfinger, above, came under fire.

  • photo
Iacocca blasts DCX; worker group upset

Dissident voices -- of current workers and a former chairman -- are rising over DaimlerChrysler AG and the deal to split it back in two.

UAW members who wanted to take Chrysler private as an employee-owned company lashed out Thursday at their union's leadership for not aiding their efforts.

"Chrysler's management and union employees have been betrayed by the UAW and denied the right to bid fairly for Chrysler by DaimlerChrysler," Michele Mauder, an hourly worker at the Toledo Jeep plant, said in a statement. UAW President Ron "Gettelfinger refused and continues to refuse to assist, support or stand up for all the employees, who don't want to be pawns in the private equity world. We want to buy the company and we can do it."

Former Chrysler Corp. Chairman Lee Iacocca weighed in Thursday on the proposed deal by DaimlerChrysler to sell Chrysler to private equity giant Cerberus Capital Management. Cerberus is spending $7.4 billion to acquire an 80.1% stake of the Auburn Hills-based automaker, though most of that money will go into Chrysler.

"Daimler screwed Chrysler royally," Iacocca wrote in an essay for BusinessWeek. When the companies merged in 1998, "Chrysler was the lowest-cost producer and the most profitable car company in the world, with sales of 2.5 million cars and light trucks. But it took Daimler less than a decade to drive Chrysler off a cliff."

DaimlerChrysler Chief Executive Dieter Zetsche and Chrysler CEO Tom LaSorda have both said the deal with Cerberus is the best option for both sides of the company.

Gettelfinger, who stresses that the union was not involved in picking a buyer, has said it is the best option for the workers.

"Certainly the announcement on Monday that Cerberus will be the new owner of Chrysler is a concern to all UAW members who work at Chrysler plants. As most of you are aware, our union fought hard to keep Chrysler within DaimlerChrysler," Gettelfinger said in an online forum Wednesday. "Unfortunately, the company decided that was not an option."

A UAW spokesman declined to comment Thursday.

Iacocca weighed in on Gettelfinger's blessing of the Chrysler-Cerberus deal.

"With new contract negotiations set to begin this summer, many workers fear they'll be forced to make huge concessions," Iacocca wrote. "But that fear existed before the sale. If Cerberus is serious about reviving Chrysler, it will have to take care of the employees who build the cars and the dealers who sell and service them."

Mauder and her group, called Chrysler Employee Buyout Committee, emerged on the public scene April 4 when an ally in Germany read a letter during the DaimlerChrysler AG shareholder meeting in Berlin urging an employee buyout.

The group's idea was reviewed by the union and DaimlerChrysler but never went anywhere.

Gettelfinger had said the union was considering all options but also referred to the group's idea as "sketchy."

The employee group complained that its efforts were not taken seriously by DaimlerChrysler.

"It is one thing to be outbid for a company, but it's quite another thing not to be allowed to bid at all," Richard Caires, a Connecticut investor who signed on as a consultant for the group, said.

On Monday, Zetsche was asked about the employees' idea. "There was no substance at any point in time," Zetsche said of the group's efforts.

Kevin Tynan, an analyst with Argus Research, predicted Thursday that new owner Cerberus will likely do one of three things: "Keep Chrysler and use its automotive restructuring expertise to drive the company to recovery, something Chrysler couldn't do; win some modest concessions with the union through the new UAW contract and flip the whole package to another chump; or carve up the pieces ... and sell off the assets one by one."

2007 Chrysler 300 - 10Best Car

A bully in black tie.

January 2007

Conventional wisdom holds that the Chrysler 300 owes its success to its boisterous, larger-than-life styling, and a lot of owners will confess to being drawn to the big sedan’s standout sheetmetal. But the 300 also offers fine steering and an excellent blend of ride and handling, as you’d expect from a vehicle that employs major suspension components from the Mercedes E-class sedan of the mid-’90s.

Under its hood buyers can choose from mild and wild Hemi V-8s, with up to 425 horses coupled to a five-speed automatic with manual control. Also available are a pair of smooth V-6s for delivering a more sedate blend of mileage and performance.

The 300 has a huge back seat (even huger in the new-for-’07 long-wheelbase versions), a capacious trunk, and fold-down rear seats to provide cargo utility. The cabin is structurally rigid, free of road-induced vibrations, and impressively quiet.

Finally, this goodness comes at prices that make the 300 a standout in today’s crowded automotive landscape. Whether you judge a car by its looks, speed, practicality, quality, or value, the 300 remains the best big mainstream sedan on the market.

VEHICLE TYPE: front-engine, rear- or 4-wheel-drive, 5-passenger, 4-door sedan

BASE PRICE: $24,555–$41,095

ENGINES: DOHC 24-valve 2.7-liter V-6, 190 hp, 190 lb-ft; SOHC 24-valve 3.5-liter V-6, 250 hp, 250 lb-ft; pushrod 16-valve 5.7-liter V-8, 340 hp, 390 lb-ft; pushrod 16-valve 6.1-liter V-8, 425 hp, 420 lb-ft

TRANSMISSIONS: 4-speed auto, 5-speed auto with manumatic shifting

Wheelbase: 120.0–126.0 in
Length: 196.8–202.8 in
Width: 74.1 in
Height: 57.9–58.4 in
Curb weight: 3750–4300 lb

EPA city driving: 14–21 mpg

New Chrysler; Old Union

More From Jerry Flint

Jerry Flint, 05.17.07, 2:35 PM ETThe other evening I was watching the ABC Evening News. The purchase of Chrysler was the big story, and the network had some professor explaining that the union was in a hole, now that the company was going private. That is because the new owners could say something like (my interpretation of his words): "Give it all up, you UAW pigs, or we'll go bankrupt and then you'll all be out of work."

On the same day, The New York Times, on Page 1, saw the union's position on Chrysler as influencing its actions with General Motors (nyse: GM - news - people ) and Ford Motor (nyse: F - news - people ). The newspaper said, "The most obvious way" for the new owners to make money on their investment is "by reducing the benefits that workers hold sacred."

The conventional wisdom is that a private company would be tougher for the auto union to deal with because the owners could be uncompromising. This is nonsense. It does not make much difference if the company is public, private or owned by the new president of France.

I have had a bit of experience here: I was once the national labor writer of The New York Times and personally covered the negotiations between the United Auto Workers union and the automakers for 15 years. Let us not forget that the Chrysler pension fund is not in the red but over-funded.

Public or private does not make any difference.

For starters, the current union contract runs into the fall, and Chrysler, no matter who owns it, must obey this agreement. The new private company can no more rush into bankruptcy as a means to pressure the union than the old public Chrysler could. That is because people are unlikely to buy cars and trucks from a bankrupt carmaker. If the company were to file for Chapter 11, the private owners, Cerberus Capital Management, would lose the $7.4 billion they paid. They might lose control of Chrysler as well.

In my memory, when Ford was private (until the 1950s), it was more generous with the union that General Motors or Chrysler were. In fact, the first contract Ford signed with the union, back in 1939, I think, made concessions that the young UAW never expected--like the check-off, meaning the company collects the union dues from each worker's paycheck.

Chrysler is losing money, but that is because of poor management decisions, not union wages and benefits. The three-quarter billion-dollar operating loss in the first quarter should have been a profit but was not because Chrysler is knocking thousands of dollars off the price of its new cars and trucks. Managers ordered overproduction a year ago and now have to give vehicles away to lower inventories. The situation is so bad that dealers still have thousands of leftover 2006 models on the lots.

Talks for a new labor contract begin in the summer. The union traditionally picks one "target" to negotiate with, and then once it has a new contract, it passes the same terms on to the two other Detroit companies. You can be sure that this time Chrysler will not be the target. My bet is that GM will be first this time, and then Ford and Chrysler will sign the contract, with a few minor differences. If the union were to ask Chrysler workers to take less, they would vote it down.

Yes, there will be concessions in the new contract, even on health care. How large and how many concessions are the question. It is good to remember that when Chrysler was in real danger of going under, in the Lee Iacocca days in the '80s, the union would not give wage concessions until Congress said the company would not get loan guarantees without union compromises. The union conceded.

The new Cerberus owners know something about UAW bargaining. Their investments in the auto industry goes way beyond Chrysler: They have already bought half of GMAC, GM's finance company, and now will own Chrysler Financial. They are also buying bankrupt Tower Automotive, a big car parts maker that is in bankruptcy. Cerberus was also trying to invest in bankrupt Delphi (nyse: DPH - news - people ), the largest car parts maker in the world, but appears to be backing out of the deal because of union resistance to concessions. In addition, Cerberus has hired several talented auto industry veterans, including Wolfgang Bernhard, who used to be No. 2 at Chrysler.

There are two possible plus factors in dealing with the union. The UAW never gave Chrysler the same health care concessions it gave to GM and Ford, which was not fair. (At the time of that deal, Chrysler was in better shape than its two rivals were.) The union could now offer Chrysler the same accommodation as a conciliatory gesture.

Another factor is that the Canadian Auto Workers (CAW), a different union (split off from the UAW), is willing to bend over backward to save jobs in Canada. In February, Chrysler asked its workers at its Ontario plant (three shifts a day making the Chrysler 300 and other cars) to give up extra pay in exchange for a promise of more work.

At first, the Canadian union voted down the proposal. Then the CAW leadership came in and told the workers that their jobs were in jeopardy. The workers voted again and gave up the extra pay. The UAW in the U.S. should know it must make concessions or some Chrysler jobs could go to Canada.

The new Chrysler will get concessions from the UAW, but they will be the same basic concessions that GM and Ford get. And in the end, the new owners will not turn around Chrysler by getting labor concessions--yes, they need them, too--but by figuring out how to sell more car and trucks that consumers really want and getting more dollars for each sale.

Thursday, May 17, 2007

How to blow $36 billion


How to blow $36 billion
Magna International should be glad it lost out

Guido Reinking is editor of Automobilwoche.

Guido Reinking | Automotive News Europe
May 14, 2007 - 3:30 pm

MUNICH -- Until two weeks ago, it looked like Magna International Inc. would take over the Chrysler group. The negotiations were very lively. Hedge funds didn’t seem to have a chance because a sale to an “unscrupulous investor” was rejected by DaimlerChrysler board members.

But it was the bid of hedge fund Cerberus Capital Management that was accepted after all. The hell hound snapped Chrysler away from Magna.

Magna founder Frank Stronach should not be too sad about that. The expectation to take over Chrysler, with its $18 billion in health care and pension liabilities, should be a real nightmare for an honest, computing businessman.

Daimler accepted the Cerberus bid because the investment fund takes 80.1 percent of Chrysler and with it the risk for unsecured pension checks. Magna always wanted only 49 percent of Chrysler.

The 5.5 billion euros ($7.45 billion) Cerberus is paying should boost the equity capital and therefore be a counterbalance to the backbreaking pension charges. They do not even cover half of those liabilities.

The core question is still not answered by selling Chrysler to Cerberus: How should an automaker, which is struggling with such legacy costs, survive against competitors such as Toyota Motor Corp.? And while we wonder about whether Chrysler will survive against those costs in the long term, it is even more interesting to know how General Motors and Ford Motor Co. will endure this. Their burdens are much higher.

Another question comes to mind: Couldn’t this have been predicted already in 1998 when former DaimlerChrysler CEO Juergen Schrempp bought Chrysler for $36 billion?

Daimler, Cerberus to shore up Chrysler pension, UAW says

Reuters |
May 17, 2007 - 10:00 am

DETROIT (Reuters) -- The United Auto Workers union said it received a guarantee that the pension fund for Chrysler workers would get an additional $1.2 billion as a result of the pending sale of the struggling automaker.

UAW President Ron Gettelfinger, a member of the DaimlerChrysler AG supervisory board who has endorsed the Chrysler deal, said both the future Daimler AG, and Chrysler's new owner, Cerberus Capital Management LP, would contribute to the pension plan.

"Cerberus has committed to contributing an additional $200 million to the pension fund and Daimler is providing a conditional guarantee of $1 billion for up to five years," Gettelfinger said.

The comments came in an online discussion on Wednesday, May 16, between union members, Gettelfinger and UAW Vice President General Holiefield, who will take charge of negotiating a new contract with Chrysler to replace a four-year deal on wages and benefits expiring in September.

The UAW officials also said Cerberus had provided a written commitment that there were "no new plans" to cut jobs at Chrysler in addition to the 13,000 jobs already being eliminated as part of a turnaround effort.

"Excluding abnormal market conditions ... there are no additional job cuts in connection with the transaction," the union said, quoting a letter from Chrysler.

Chrysler's roughly $17 billion in health care liabilities and the pension burden for its unionized work force have been a major uncertainty as the No. 4 U.S. automaker heads into contract talks under private ownership.

The UAW comments marked the first time terms for any additional Chrysler pension funding had been detailed since the sale of an 80 percent stake in the company to the private equity firm was announced on Monday, May 14.

In a conference call with analysts and reporters to discuss the sale, DaimlerChrysler CEO Dieter Zetsche declined to comment when asked whether Daimler and Cerberus had committed additional pension funding as part of the $7.4 billion sale of Chrysler.

"Those discussions ... are confidential discussions without any outcome," Zetsche said then.

Representatives for the Chrysler group and Cerberus had no comment on Gettelfinger's remarks on Wednesday.

A DaimlerChrysler spokesman confirmed the German automaker had extended the pension guarantee, but said he could not provide further detail on the terms.

Gettelfinger's comments on the new pension funding came after he surprised some industry analysts with his immediate endorsement of the Cerberus deal this week, given his earlier hostility toward a private equity owner for Chrysler.

In his remarks to union members on Wednesday, Gettelfinger pointed to areas where the UAW, a union with strong ties to the Democratic Party, had common cause with Cerberus, whose chairman is former Bush administration Treasury Secretary John Snow.

Gettelfinger noted that a Cerberus-owned company NewPage had filed a trade complaint in conjunction with its union, the United Steelworkers, against what they claimed were subsidized paper imports from China, Indonesia and South Korea.

Gettelfinger called the lawsuit and an initial U.S. Commerce Department finding for NewPage "a tremendous accomplishment by Cerberus and the (union)."

Taking a question from a concerned union member outside Detroit, Gettelfinger also said the UAW recognized Chrysler would have to compete on quality and customer service. He added: "Cerberus management has assured us that they feel the same way."

Some analysts have suggested that Chrysler under Cerberus could consider shifting health care liabilities for retired workers to a trust aligned with the UAW and separate from the company in exchange for a one-time payment.

That would mark a major shift for a Detroit automaker and follow the outline of a strike settlement reached earlier this year between Goodyear Tire & Rubber Co. and its major union, the United Steelworkers.

On Wednesday, a UAW member called on Gettelfinger to consider having the union take a role in running the Chrysler pension.

Gettelfinger avoided commenting on the specific suggestion.

"The UAW has and will continue to negotiate responsible agreements that include pension plans," he added.


DaimlerChrysler Cars

RED Indicates changed or new information

The lead time represents the estimated order to delivery period under normal conditions and does not take into consideration holds or delays. Extended lead times (when available) are noted under the Key Production Hold or Delay column.

*All models and constraints are for the 2008 MY unless noted otherwise.

** Orders should be placed at least 30 days prior to the option’s final build date for all DaimlerChrysler vehicles.

Due to various assembly plant assignments for specific model lines or ordered options; the DaimlerChrysler constraints listed below may or may not apply at the time an order is placed.





Chrysler 300/300C,

Dodge Magnum,

Dodge Charger



Chrysler Pacifica



Chrysler PT Cruiser



Chrysler Sebring Sedan



Dodge Avenger



Dodge Caliber



Jeep Compass



DaimlerChrysler Trucks

RED Indicates changed or new information

The lead time represents the estimated order to delivery period under normal conditions and does not take into consideration holds or delays. Extended lead times (when available) are noted under the Key Production Hold or Delay column.

*All models and constraints are for the 2008 MY unless noted otherwise.

** Orders should be placed at least 30 days prior to the option’s final build date for all DaimlerChrysler vehicles.

Due to various assembly plant assignments for specific model lines or ordered options; the DaimlerChrysler constraints listed below may or may not apply at the time an order is placed.





Chrysler Town & Country

Dodge Grand



Dodge Dakota



Dodge Durango



Chrysler Aspen



Dodge Nitro



Dodge Ram Pickup DR 1500, 2500, 3500 and Mega Cab



Jeep Grand Cherokee



Jeep Commander



Jeep Liberty



Jeep Wrangler



Jeep Patriot



Spy Photos: Dodge JC49 Crossover Spotted On I-75!



JALOPNICK.COM | DETROIT - - Our man with the cam, Evander, snapped some great shots of the upcoming Dodge JC49 crossover with a minivan nanny over on I-75 that we bet could make even Priddy's boys beam with pride. The JC49, which has also been called the "Crew," is built off of the JS/JC platform -- the very same one the Sebring and Avenger find themselves birthed from. So, umm, what else -- well, it's got dual pipes, so maybe it'll have the 3.5-liter V6 engine on the high end. And, umm, we also hear it'll begin production in December of this year. So, that's good -- at least we know the pending sale of the Chrysler Group isn't putting a damper on their attempts at platform prostitution. Ah, some things will never change.

Dodge Gets Another Crossover

1973 Dodge Charger - Insurance Salvage Auction grab

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