Private equity saves Chrysler?
Bill Pugliano/Getty Images For the first time, a major U.S. automaker is in the hands of a private equity group. Cerberus Capital Management, a private equity firm based in New York that specializes in restructuring failing companies, has bought an 80.1 percent stake in the Chrysler arm of Daimler-Chrysler for $7.41 billion. Chrysler has been ...
Bill Pugliano/Getty Images
For the first time, a major U.S. automaker is in the hands of a private equity group. Cerberus Capital Management, a private equity firm based in New York that specializes in restructuring failing companies, has bought an 80.1 percent stake in the Chrysler arm of Daimler-Chrysler for $7.41 billion. Chrysler has been losing money for the past few years, and is mired in billions of dollars worth of retirement liabilities.
For Daimler shareholders, it’s good news—Daimler’s shares rose 3.7 percent in Frankfurt after the news yesterday. Daimler is effectively paying Cerberus to take Chrysler’s pension and health care costs off its hands, and shareholders are understandably relieved.
For Chrysler workers, the result is ambiguous. After initially opposing the deal—no surprise, since Cerberus expects to “profit on [its] investment by reducing wages and paring other costs such as pension expenses”—United Auto Workers (UAW) union President Ron Gettelfinger came out in support of it. Analysts believe Cerberus and the UAW must have cut some sort of deal, and Chrysler’s chief executive did say that no new job cuts were planned beyond the 13,000 announced in February. It’s hard to fault Gettelfinger; American Airlines workers faced essentially the same choice four years ago and ultimately decided to take pay cuts rather than lose their jobs entirely.
As for Cerberus, it’s taking a huge risk here. Its purchase of a major American icon could provoke a backlash in Congress against private equity firms, which are already gaining a bad reputation in the United States for lack of transparency and what some see as vulture-like behavior. But for all the criticism, Cerberus may end up providing exactly what Chrysler needs as well as a template for the other big U.S. auto makers to follow. Of course, if Cerberus fails to lift Chrysler from its current quagmire, U.S. taxpayers could end up furious at footing the bill for a massive bailout. If that happens, people shouldn’t forget that Chrysler was heading in that direction anyway—long before Cerberus.
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