Cerberus after all of Chrysler

DETROIT–Maybe Daimler wants to cut its losses on Chrysler, or Cerberus Capital Management wants to own the U.S. automaker outright. Whatever the motivation, the companies confirmed Wednesday that talks are under way for Daimler to sell its remaining 19.9 per cent stake in Chrysler to the private equity firm.

Neither side would give further details, except Cerberus said it approached Daimler and if the transaction is successful, "all existing industrial relationships between Daimler and Chrysler would continue.''

The talks, reported earlier Wednesday in Germany's Manager Magazin, come amid a crisis in the U.S. auto industry with falling sales, billions in losses and a dramatic market shift away from trucks and sport utility vehicles to small, fuel-efficient cars. Chrysler LLC's U.S. sales are down 24 per cent through August, the worst performance of any major automaker.

Analysts say it's a good time for Stuttgart, Germany-based Daimler to bail out, but it may be a bad time for Cerberus, which already is overexposed to U.S. economic problems, to spend more money on a losing operation.

"I can see why Daimler would want to exit," said Mark Warnsman, an auto analyst with Calyon Securities. "The only reason I could think that Cerberus would want more exposure is they're getting a very attractive price.''

Cerberus Capital Management LP bought 80.1 per cent of Chrysler from Daimler AG in August 2007 in a $7.4 billion (U.S.) deal. The sale ended a stormy nine-year partnership between Daimler and Auburn Hills, Mich.-based Chrysler, though the companies have continued to share diesel-engine and other technology.

Aaron Bragman, an auto analyst with the consulting company Global Insight, said Daimler may no longer want to deal with continued losses at Chrysler. Cerberus may want to buy the whole company to make reselling it easier, or a clause in the 2007 sale contract could be forcing Cerberus to buy Chrysler's stake under certain conditions.

"We can't imagine that Cerberus has a lot of free cash on hand to do this," Bragman said. "That kind of makes us think it was something they were forced into doing.''

Cerberus, he said, has been taking hits on its investments in Chrysler and GMAC, General Motors Corp.'s former financial arm, which has posted huge mortgage losses.

As a private company, Chrysler does not have to report its earnings, but reporters and analysts have been able to calculate Chrysler's performance from Daimler's financial statements. The German company's results last month showed that Chrysler lost an estimated $510 million in the first quarter. Chrysler lost $1.6 billion in 2007.

Buying 100 per cent of the company would make Chrysler's earnings completely private, but Bragman said the privacy wouldn't be worth the price of buying Daimler's stake.

Top Chrysler executives told their dealers Tuesday that the company has lost $400 million this year. Chief Executive Bob Nardelli and Vice Chairman Jim Press used a satellite feed to address dealers who gathered in movie theaters across the country for a three-hour presentation on the state of Chrysler's business and future products.

Chrysler spokesman Stuart Schorr would not comment on what was discussed with dealers, but said the company has only talked about its performance for the first half of the year.

"There was no new financial information announced yesterday,'' he said.

The Chrysler executives, according to a dealer who saw the presentation, did not state the time frame for the $400 million loss, nor did they say if it was an operating or net loss. The dealer did not want to be identified because the meetings were private.

Chrysler also issued a statement in the past saying it lost $400 million in the first quarter.

Chrysler's losses, while still murky, appear to be puny when compared with its two U.S.-based competitors. Ford Motor Co. posted a net loss of $8.6 billion in the first half of the year, while GM's first-half net loss was $18.8 billion.

Efraim Levy, a senior industry analyst with Standard & Poor's, said in a note to investors that the value of Daimler's stake in Chrysler has dropped. He maintained a "Hold" recommendation on Daimler shares.

"Given the materially weakened automotive retail environment, sharply lower Chrysler sales volume, and decreased valuation for publicly traded U.S.-based automakers since the 2007 transaction, we think DAI's Chrysler stake is worth much less now than it was at that time," Levy wrote. "However, we see little advantage in DAI keeping the minority interest.''