Cerberus looks set to win Daimler's Chrysler unit

• Published in: Wall Street journal. Europe
• Main Author: Gina Chon, Jason Singer, Dennis K. Berman and Jeffrey McCracken
• Format: Newspaper Article
• Language: English
• Published: Brussels Dow Jones & Company Inc 14.05.2007
• Edition: Europe
• Subjects: Costs; Equity; Equity stake; Private equity
• ISSN: 0921-9986

A private-equity takeover of Chrysler would mark a watershed moment in the U.S. auto industry, in which Detroit's unionized auto makers are struggling with pension and health-care debts owed to United Auto Workers members in the U.S. Those debts, and the cash required to fund them, have hobbled General Motors Corp., Ford Motor Co. and Chrysler in the face of relentless competition from Asian and European rivals. Overseas and U.S. operations of Japanese auto makers such as Toyota Motor Corp. have labor-cost advantages over Chrysler estimated at as much as $30 an hour. Cerberus has a record of slashing costs at operations it acquires, and some analysts say a Cerberus-owned Chrysler could move much more aggressively to slash labor costs, attack Chrysler's overpopulated network of U.S. dealers and shift investment to developing markets. But any final deal also hinges on what happens this summer, when the UAW kicks off negotiations for new master contracts with all three Detroit auto giants. Mr. [Dieter Zetsche], who led a Chrysler turnaround effort from 2000 until shortly before he became the parent company's CEO in 2006, at first resisted calls from some shareholders to sell Chrysler after the U.S. unit stumbled back into the red last year. But on Feb. 14, Mr. Zetsche acknowledged that selling Chrysler was under consideration. DaimlerChrysler shares surged after the disclosure, and the move to unload Chrysler gathered momentum.