Cerberus May Buy Rest of Chrysler

DETROIT (Reuters) – Daimler AG (DAIGn.DE: Quote, Profile, Research, Stock Buzz) is in talks with private equity group Cerberus Capital Management to sell its remaining 19.9 percent stake in struggling U.S. automaker Chrysler LLC.

Cerberus, which bought 80.1 percent of Chrysler in May 2007 in a $7.4 billion deal just before a sharp slowdown in overall U.S. auto sales, said on Wednesday it had approached Daimler for a possible sale.

It is unclear at this time how much Daimler’s stake in Chrysler would be worth. Daimler said in July the book value of its stake was 171 million euros.

The move comes as Chrysler faces scrutiny over whether it has the cash to ride out a downturn in U.S. auto sales that many analysts expect to stretch through 2009.

“It’s still very early to tell why this is happening,” Aaron Bragman, auto analyst at Global Insight, said.

Bragman said it was unclear what had prompted the sale talks between the two Chrysler stakeholders, adding that it was possible Daimler had decided to cut its losses or was taking advantage of an unpublicized provision of the original sale contract.

“Maybe it’s a prelude to Cerberus taking total control before a sale to a third party,” Bragman said. “We will just have to wait and see.”

In the event of a deal, all existing industrial relationships between Daimler and Chrysler would continue, Cerberus said.

Daimler and Chrysler, for example, have a partnership on hybrid technology, and also the axles from a new Chrysler parts plant in Michigan are expected to go into Daimler’s M-Class Mercedes SUV.

Daimler, which confirmed it was in talks with Cerberus, sold a majority of its Chrysler stake after facing shareholder criticism over the steep losses posted by the U.S. automaker. The German automaker now focuses on its commercial trucks and Mercedes-Benz luxury brand.

The news of the talks between Cerberus and Daimler came a day after Chrysler showed off a trio of electric vehicles in development — including battery-powered versions of its popular minivan and Jeep Wrangler — as it tries to revamp its image and revive demand for its vehicles.

Chrysler, like its U.S. rivals General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz), has been hit hard by the sharp decline in sales of pickup trucks, SUVs and vans that followed the rise in gas prices.

Chrysler’s U.S. sales have fallen nearly 25 percent through the first eight months of the year, the largest decline of any major U.S. automaker. Light trucks account for nearly 70 percent of Chrysler’s volume at a time when consumers are moving towards smaller and more fuel-efficient vehicles.

Also, Chrysler has relied on the U.S. market for almost 90 percent of its overall sales of cars and light trucks in 2007, a higher percentage than its Detroit-based rivals GM and Ford, which have been able to count on gains in emerging markets to offset losses at home.

The automaker, which lost $1.6 billion in 2007, posted an additional $400 million loss during the first half of this year.

Chrysler, which is restructuring its operations, has been closing plants and cutting jobs amid the sales slump. It has also identified nearly $1 billion in nonearning assets for sale to raise cash for operations.

Chrysler Chief Executive Bob Nardelli said on Tuesday he was “very confident” in Chrysler’s business plan and liquidity position.
By Poornima Gupta
(Additional reporting by Kevin Krolicki, editing by Leslie Gevirtz, Andre Grenon, Richard Chang)