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 Chrysler LLC had long appeared as if it were driving up a dead-end, but after a private equity buyout, investors are shaking things up to turn it around. The company said Nov. 1 it would cut up to 15% of its work force, or more than 10,000 jobs, as part of its turnaround (on top of 13,000 job cuts announced earlier this year, ahead of the company's take-private). (See below.) The news comes just days after Chrysler seemed to have finally nailed down a deal with its labor union workers.
The two reached a tentative agreement Oct. 10 but as it the contract went to a vote, United Auto Workers came down on both sides and it seemed unclear for several days whether enough votes would fall in favor of the agreeement. Stalled negotiations led to a strike Oct. 9 across some plants that lasted six hours. The work stoppage mimicked a similar walk-out by autoworkers over labor negotiations with General Motors Corp. in September. But, as sources following the talks told The Deal's Lou Whiteman, Chrysler's new owner Cerberus Capital Management LP was standing firm against adopting select provisions of the UAW-GM deal unless modified. DaimlerChrysler AG announced May 14 that New York's Cerberus would take an 80.1% stake in the Michigan automaker in a deal worth $7.4 billion. Despite debt market jitters, the deal closed Aug. 3. As Whiteman pointed out, all eyes then turned to Cerberus in anticipation of its plans for the automaker. August was a busy month.
The May 14 Cerberus news came three months after DaimlerChrysler kicked off a strategic review as part of an aggressive turnaround plan aimed at returning the automaker to profitability by 2008. Later that same day, a Bloomberg report said Ford family members were considering a stake sale in ailing automaker Ford Motor Co., citing unnamed sources. Chrysler may be on to something. The Chrysler auction drew several usual suspects. Chrysler confirmed April 4 it was in talks with interested parties, and according to multiple reports, alongside Cerberus, Blackstone Group LP was in the running, as well as Canadian auto parts maker Magna International Inc. A day later, published reports said billionaire investor Kirk Kerkorian's Tracinda Corp. was ready to offer $4.5 billion for the company he tried to acquire outright in the mid-'90s and years later brought suit against for its tie-up with then-Daimler-Benz. A KeyBank analyst research note first shed light on a Magna bid, saying the company had teamed with an unnamed buyout shop and made a $4.7 billion bid for Chrysler. Centerbridge Partners LP and Ripplewood Holdings are two other private equity firms rumored to have considered an offer. Meanwhile, the strategics withdrew. General Motors Corp. was pinpointed, though a deal between the Michigan neighbors would likely have presented antitrust issues. Days after the strategic review was unveiled, Chrysler was thought to have already lost prospective bidders -- France's Renault SA and Japan's Nissan Motor Co. Ltd., who were named by analysts as others possibly interested after the pair's own talks with General Motors Co. fell apart last year, said they were not interested. Another possibility bit the dust Feb. 23, when a Volkswagen AG spokeswoman confirmed it has no interest. DON'T LOOK BACK The U.S. division of Germany's DaimlerChrysler on Feb. 14 reported an operating loss of $1.47 billion in 2006, compared with an operating profit of $2 billion in 2005. Concurrently, management unveiled its turnaround plan. Auburn Hills, Mich.-based Chrysler has sustained inventory problems and gas-guzzling SUVs and trucks are falling out of fashion with consumers. The manufacturer plans to cut 13,000 jobs, shutter some facilities and invest $3 billion in powertrain technology to focus on fuel-efficient models. Despite Chrysler's financial drag on its Stuttgart-based parent, which counts Mercedes among its marquee brands, it managed to turn a $7.2 billion operating profit in 2006, which made the idea of divesting Chrysler all but a no-brainer. To weigh its options, DaimlerChrysler tapped J.P. Morgan. Nearly a decade ago, Daimler-Benz AG then-chief executive Juergen Schrempp decided to take Chrysler Corp. for a $36 billion spin. Schrempp's thinking, as The Deal's Andrew Bulkeley points out, was to cut costs by jointly purchasing auto parts and realizing other synergies, even trying to acquire Japan's Mitsubishi Motors Corp. and South Korea's Hyundai Motor Corp. But in the U.S., overcapacity sparked a price war. Chrysler grappled with quality issues, and it came to light that Mitsubishi executives had conspired to hide manufacturing faults that pushed the carmaker near bankruptcy. Schrempp was forced out in 2005, and the possibility of Daimler unloading the unit has long been one of speculation. WHO WANTS 'EM? Chrysler and its new owner aren't without their challenges. The buyout shop will take on Chrysler's $20 billion in benefit liabilities and take charge of its turnaround. The scenario is all too familiar among U.S. automakers. For more on the GM front and about Ford's turnaround, see related Dealwatches. Of the failed GM-Renault-Nissan talks, Whiteman points out: Bolstered by early benefits of a $9 billion cost-cutting campaign, GM rejected the offer. But the suggestion that GM's interests could be served by tying its future to smaller Japanese and European rivals meant it was no longer unthinkable. Indeed, Ford Motor Co. courted Renault and its leader, Carlos Ghosn, before hiring former Boeing Co. exec Alan Mulally as CEO. The failed GM-Renault deal also points up the opposition any consolidation attempt would create. The United Auto Workers warned that the alliance "could change the complexion" of the industry, while Midwest politicians made it clear they did not want to see any of Michigan's remaining nameplates succumb to the fate of Chrysler Corp., which merged with Daimler-Benz in 1998. 'The Chrysler thing has left everybody here with a very bad taste in their mouth,' Congressman John Dingell, D-Mich., said in July. --Carolyn Murphy
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