Buyout Firm Close to Winning Chrysler Bidding; Deal Would Rid Daimler Of Billions in Liabilities, Shift Control to Cerberus

• Published in: The Wall Street journal. Eastern edition
• Main Author: Gina Chon, Jason Singer, Dennis K. Berman and Jeffrey McCracken
• Format: Newspaper Article
• Language: English
• Published: New York, N.Y Dow Jones & Company Inc 14.05.2007
• Edition: Eastern edition
• Subjects: Bids; Buyouts; Chief executive officers; Contract negotiations; Corporate profits; Costs; Equity; Equity stake; Private equity
• ISSN: 0099-9660

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 cut labor costs, prune Chrysler's crowded dealer network in the U.S. and shift investment to developing markets overseas. But any final deal for Chrysler also hinges on what happens this summer, when the United Auto Workers kicks off negotiations for new master contracts with all three Detroit auto companies. A sale to Cerberus could face opposition from Chrysler's unions, which have said they oppose a private-equity takeover. The UAW, in particular, has a contentious relationship with Cerberus. Last month, the union -- which represents about 50,000 of Chrysler's 80,000 workers, as well as many in the auto-parts industry -- refused Cerberus's demands for wage and benefit cuts for new hires at parts supplier Delphi Corp. That makes it likely that Cerberus will pull out of an investor group that agreed to buy Delphi out of bankruptcy protection. The key to the deal will be what happens to Chrysler's $18 billion in pension and health-care liabilities. The UAW and Detroit auto makers like GM have been studying a recent deal at Goodyear Tire & Rubber Co., in which the United Steelworkers union agreed to let Goodyear shift $1.2 billion in future health-care liabilities to a fund managed by the union. In return, Goodyear contributed $1 billion in cash and Goodyear stock to the fund. Getting a Goodyear-like deal from the UAW in this year's talks would be especially important at Chrysler because it could mean that neither DaimlerChrysler nor the purchaser of Chrysler would have the multibillion-dollar liability on its books.