DaimlerChrysler is no more

Earlier today, DaimlerChrysler sold off their Chrysler division to Cerebus Capital Management ending the decade-long “Merger of Equals” and making Chrysler now one of the largest private volume manufacturers.  The Merger of Equals was engineered in the late 90s by DaimlerBenz who wanted to acquire an American volume manufacturer to expand their market segment while Chrysler wanted Mercedes to ward off a takeover from Kirk Kerkorian.  The early start of the merged DaimlerChrylser was problematic with Stuttgart firing most of the American management and replacing them with Dieter Zetsche and Wolfgang Bernhard, who went on to turn the division around.

Some early synergies from the DaimlerChrysler merger were the Crossfire, Pacifica, and the 300C.

The Crossfire coupe is actually a car that was based around an old SLK platform with an original design.  Americans complained about the price and the fact that it didn’t feel like a real American car while smart shoppers realised they were getting a bargain by buying an old SLK in American sheetmetal.

The next car that was developed was the Pacifica, which initially flopped because it was too expensive, and the platform was later used to further develop the Mercedes R-Class.

The 300C is actually interesting because the car and its variants were based around an old Mercedes E-Class platform, hence the rear-wheel drive and the stronger performance compared to past Chryslers.  It was interesting to note that this car helped turn around the division in 2003 as the “It” car for buyers, but they went overboard by creating derivatives such as the Charger and Magnum.

Things seemed well with Chrysler until they started overdeveloping new products for dealers.

The earliest mistake was the Chrysler Aspen, which was basically a Dodge Durango with Chrysler sheetmetal, and then they set their design back with the Sebring, which looked hideous on every level.  For some reason, they also decided to focus mainly on SUVs, large V8 muscle cars instead of hybrid technologies which were becoming more relevant with soaring petrol prices.

With the overcapacity and lack of products to sell to the average consumer, Chrysler’s fortunes went to hell around 2004, when they started posting mounting losses.  Prior to these new figures, Zetsche was actually promoted to head DaimlerChrysler while Bernhard moved on to work his magic in Volkswagen, leaving Tom LaSorda in charge of Chrysler.  At this point the dealers affiliated with the Chrysler group started revolting at the company for trying to force them to accept unwanted inventory and generally being unresponsive to their needs.  More trouble started as DCX shareholders pressured Zetsche to sell off the Chrysler group in a bid to retain purity and to reduces ballooning expenses.

Eventually Chrysler was put on the auction block, with GM, Magna International, Tracinda, Blackrock and Cerebus Capital expressing interest.  Rumours claimed that Magna International won the bid, but it was actually Cerebus Capital

May 14, 2007

The DaimlerChrysler Corporation has announced that the corporation is divesting itself of the Chrysler Group by selling it to New York City-based private equity firm Cerberus Capital Management for $US 7.4 Billion. The companies’ names are announced to be changed to Daimler AG and Chrysler Holding LLC. DaimlerChrysler has sold 80.1% of its stake in Chrysler, retaining the other 19.9%, for joint ventures and other agreements and partnerships.

The agreement to sell Chrysler Group is conditional, however. DaimlerChrysler has stated that for the sale to go through, Cerberus must retain all obligations for company worker pensions and current agreements and partnerships already in place.

Cerebus gains control to Chrysler financial, which combined with their existing stake in GMAC will create quite a strong financial institution.  On the other hand, Chrysler gets to keep some control of the company in the event it ever finds any successes in the future and the UAW gets to keep enough of their workforce around in the future.  As a private volume car manufacturer like MG Rover,  Chrysler can now focus on their goals with no external pressures from shareholders and hopefully LaSorda with advice from Bernhard will get them back on track.    So it looks like the Big Three are the Big Three again, but at an unknown cost thus far.

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