- The Washington Times - Thursday, April 19, 2007

Stop the presses! Chrysler is for sale.

We all knew that. Now DaimlerChrysler has confirmed it. Facing a crowd of 8,000 shareholders, DaimlerChrysler CEO Dieter Zetsche officially announced Chrysler is for sale.

The question is: what’s next? Everyone — employees, suppliers and the media — wants a definitive answer to what will happen to Chrysler once it is sold.

How will the deal work? Will Chrysler still exist when all is said and done? If it does, what will it look like?

No one knows, not even DaimlerChrysler insiders. The sale of Chrysler is unprecedented. What can be expected is the unexpected.

For starters, don’t be surprised if DaimlerChrysler retains a stake, likely a minority one, in the new Chrysler. “We need to keep all options open. We need to keep maximum scope for maneuver,” Mr. Zetsche said in his opening statement to shareholders.

Such a stake makes sense for DaimlerChrysler because the operations of DaimlerChrysler and its Mercedes-Benz and Chrysler units have become quite integrated.

That integration makes this sale a complicated one with lots of elements to negotiate.

Potential suitors could opt not to go forward if an agreement can’t be reached on critical issues.

No matter who agrees to purchase Chrysler, it will have to negotiate a number of complicated items. Among the top issues:

• Concessions from Chrysler’s unions. Refusal by the unions could be a deal breaker.

• Agreement on who will pay Chrysler’s huge pension and health care liability.

• Disentanglement or an alternative to Chrysler and Mercedes-Benz integrated parts buying and product development and technology ventures.

• Divvying up of highly integrated Chrysler/Mercedes-Benz international operations, particularly in China.

• Negotiation with DaimlerChrysler Financial and its services. Chrysler and Mercedes-Benz have combined back-office operations for efficiency.

Mr. Zetsche confirmed DaimlerChrysler is talking with potential buyers,though he did not reveal the suitors. The leading candidates are believed to be two private equity firms, the Blackstone Group and Cerberus Capital Management, and Canadian auto supplier Magna International Inc., possibly with private equity firm Ripplewood.

A deal in which a private equity firm buys a company, breaks it up and sells it in pieces is not possible with a complicated automaker such Chrysler, deeply entwined with DaimlerChrysler corporate and its Mercedes-Benz division. Who wants to buy an assembly plant? Or buy a design center?

Selling off or closing down Chrysler and Dodge and keeping just the crown jewel, Jeep, won’t work well in this age of shared platforms.

Jeep gained a new line of products because Chrysler could springboard over to existing architectures shared with Dodge — and spread the cost between both.

The other question that makes it impossible to figure out what a post-sale Chrysler will look like is the intent of the suitors. The intent of Blackstone is the least obvious. The firm has invested in more than 100 companies in entertainment, communications, food and health care. It has some automotive experience, with investments in auto suppliers, TRW Automotive and Collins & Aikman.

Magna has made no secret. For the past couple of decades, Magna CEO Frank Stronach has expressed his desire to be in mass automotive assembly.

Most intriguing is the Cerberus bid. With its recent investments and hiring of high-horsepower automotive talent, Cerberus appears to be serious about the automotive industry. It looks as if it is building a vertically integrated automotive enterprise.

In terms of automotive talent, former Ford executive David Thursfield heads its automotive unit. Also brought into the fold are retired Ford executive Robert Rewey and former Chrysler executive Wolfgang Bernhard, who is also a former Volkswagen executive.

Cerberus just received the blessing of the bankruptcy court to buy auto supplier Tower Automotive Inc. Cerberus also is part of a group planning an investment in bankrupt auto supplier Delphi Corp.

In all of this uncertainty one thing is certain: there’s no turning back for DaimlerChrysler. The company’s shares have soared by 30 percent since Mr. Zetsche announced on Feb. 14 that the automaker was “exploring all options,” including a sale of Chrysler.

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