- The Washington Times - Thursday, November 27, 2008

DETROIT | Relations between Chrysler’s current and former owners turned ugly Wednesday when private equity firm Cerberus Capital Management LP accused Daimler AG of “intentionally and materially” misleading Cerberus before the German automaker sold Chrysler last year.

Both sides slugged it out with dueling news releases. Cerberus claimed Daimler breached the sale contract, while Daimler called the charges absurd.

The unusual public feud likely is a prelude to arbitration or a lawsuit over the sale, said Peter Henning, a former Securities and Exchange Commission lawyer who teaches at Wayne State University Law School in Detroit.

Cerberus is accusing Daimler of inflating the value of its lease and loan portfolio by lending money to buyers who didn’t meet its lending standards, Mr. Henning said.

Cerberus, he said, is essentially saying that “Daimler gussied Chrysler up to make it look good.”

“They expected Chrysler to be one thing, and in fact, it turned out to be something quite different,” Mr. Henning said. “It’s simply a statement that this company was a lot worse off than Cerberus thought when they got into the deal.”

Statements from both sides said they are still trying to negotiate a settlement, but Cerberus said Daimler has “refused to recognize the gravity of the claims relating to its deliberate conduct that resulted in the impairment of Chrysler’s business.”

Daimler spokesman Han Tjan said Cerberus performed due diligence before the sale and was given all the information it needed to close the deal.

“We reject these allegations as being completely without substance,” he said.

Cerberus, which acquired 80.1 percent of struggling Chrysler in August 2007, has been in talks with Daimler to buy the remaining 19.9 percent. General Motors Corp. also had been talking to Cerberus about acquiring Chrysler, but those talks have been suspended as GM deals with a cash shortage that could send it into bankruptcy.

The $7.4 billion Chrysler deal thus far has been a money-loser for New York-based Cerberus, which had been generating high returns for its investors. The Auburn Hills, Mich., automaker lost $1.6 billion last year and about $1.28 billion in the first half of this year.

Chrysler isn’t Cerberus’ only bad auto-related investment. The company bought 51 percent of GM’s GMAC LLC finance unit for $14 billion in December 2006. Since then, GMAC has lost more than $7 billion, mainly as a result of mortgage defaults.

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