German-based DaimlerChrysler is selling 80.1% of its stake in its Chrysler arm to Cerberus Capital Management LP, a New York private equity firm, for $7.4 billion. Cerberus also is taking on Chrysler’s $18 billion obligation for health care and pensions for employees and retirees. Daimler-Benz paid $36 billion for Chrysler in 1998.
Chrysler lost $1.5 billion last year, and despite the sale, the losses are expected
to continue throughout 2007. Before the sale was announced, there were already
plans to cut Chrysler’s work force by 13,000 and close all or part of four
plants by 2009.
While it’s been a bumpy ride, and will continue to be one for some time to
come, not all was lost on the Daimler-Chrysler merger. According to
DaimlerChrysler’s Web site, the Chrysler Group has made substantial progress
during recent years. For example, production hours per vehicle have fallen from
48 hours in 2001 to just more than 30 hours today. Quality has improved by more
than 40% during the past six years. Since 2002, more than $10 billion has been
invested in new production facilities and technologies.
Dr. Dieter Zetsche, chairman of the board of management of DaimlerChrysler AG
and head of the Mercedes Car Group, said, “As a result, Chrysler today is
structurally more sound than its North American-based competitors. And with
Cerberus as a partner, Chrysler will have the best chances of utilizing its
full potential.” But will it? Tom LaSorda, president and CEO of Chrysler Corp.,
In a message to employees, LaSorda states, “As a private (non-public) company,
we will be better positioned to concentrate on our long-term plan for recovery,
rather than on short-term results. With the financial strength and additional
operational expertise brought by our investment partner Cerberus, Chrysler will
renew its focus on what has always made us special: the passion, creativity and
commitment of our employees, suppliers and dealers to delivering exciting
Chrysler, Jeep and Dodge vehicles and quality Mopar parts to our customers.”
Now that Chrysler has gone private and will be shielded from the war cries of
shareholders and the scrutiny of the public, can the company return to its
former glory behind closed doors? General Motors has been a publicly traded
company for nearly a century and Ford Motor Co. went public in 1956. Both of
these companies have been subjected to public and shareholder scrutiny that,
many would argue, has affected some of the decisions these companies have made.
Chrysler will have no such public pressure, but will have the scrutiny of
private individuals who will expect a return on their investment.
How will becoming a private company and returning control to American soil
affect Chrysler? Could this the start of a new era for the Big Three?
On another note, Steve Wichelecki has joined Quality Magazine as assistant
editor. He can be reached at email@example.com. And join me in congratulating
Michelle Bangert in her new role as special projects editor. She can be reached
From the Editor: Big Changes for the Big Three?
June 1, 2007