Daimler to shed Chrysler

DaimlerChrysler announced today, May 14, that it will sell 80.1 percent of the Chrysler Group to New York-based private equity firm Cerberus Capital Management, L.P. for $7.4 billion — a fraction of the $36 billion Daimler Benz paid for Chrysler in the 1990s.

But even the $7.4 billion figure is deceiving as Chrysler ultimately will take that money — and then some — as it leaves the DaimlerChrysler family. About $5 billion of the proceeds will go to the Chrysler Group industrial business and almost $1.1 billion will go to Chrysler’s financial services business to improve the equity position of both companies. The remaining $1.3 billion will go to DaimlerChrysler, but about $400 million of that will be loaned to the new Chrysler Corporation LLC.

Moreover, the deal commits DaimlerChrysler to transfer the industrial business of the Chrysler Group completely free of debt. DaimlerChrysler expects negative cash flow of more than $1.6 billion before the deal closes, so its net cash outflow from the deal would be close to $700 million, although the $400 million loan to Chrysler Corporation presumably would ultimately be repaid.

Although the deal effectively amounts to a giveaway, it accomplishes a huge objective for DaimlerChrysler: Fully eliminating the company’s pension and healthcare obligations for Chrysler employees. Under the deal, a new company, Chrysler Holding LLC, will be fully obliged for those liabilities.

DaimlerChrysler — to be renamed Daimler AG — will continue to collaborate with Chrysler on some projects, and joint commercial offerings will continue. For example, Dodge and Freightliner will, at least for now, both continue to offer the Sprinter van, says Randy Jones, spokesman for DaimlerChrysler’s U.S. commercial van operations. The Dodge Ram 4500 and 5500 Chassis Cabs and the Sterling Bullet also will continue to share the same platform.

Freightliner and its affiliated companies were part of the Daimler Benz group before the Chrysler purchase and therefore are not directly affected.