October 17, 2008

Cerberus courting all bidders, may break up Chrysler, Jeep divisions

Just weeks after Chrysler's EV dog and pony show, majority stakeholder Cerberus Capital Management is courting a deal an effort to sell their stake in Chrysler LLC to General Motors, according to the Wall Street Journal and Reuters.

According to the Wall Street Journal, GM execs are receptive to the notion of a buyout and want to close the deal by the end of the month. Meanwhile, Reuters is reporting that French automaker Renault S.A is pursuing their own deal to purchase Chrysler's Jeep division, widely regarded as the single most valuable asset in Chrysler's portfolio.

Both Reuters and the Wall Street Journal report bankers are encouraging a GM-Chrysler deal. J.P. Morgan is the largest holder of Chrysler debt and is also a major banker for GM.

But here's where things get complicated.

Cerberus is not interested in exiting the auto business.
Cerberus wants to continue to own a stake in a future Chrysler - GM conglomerate. This has become a point of contention for some board members at GM who have as yet gone unnamed.

Plan B? Sell Chrysler a la carte
Reuters has reported that if a full buyout cannot be agreed upon, GM may instead choose to pick at the bones of the Chrysler portfolio. GM has expressed interest in buying Chrysler's minivan line — a niche Chrysler pioneered some 25 years ago and one where GM has had trouble competing ever since.

GM may also buy Chrysler's truck manufacturing plant in Coahuila, Mexico – a purchase that seems at odds with the GM's decision in July to idle the Oshawa, Ontario truck plant.

Other potential sales and mergers include spinning off
Chrysler Financial to merge with GMAC, General Motor's captive finance unit. Cerberus currently owns a controlling 51 percent stake. Alternatively, Cerberus may buy out GM's remaining 49 percent share to sweeten a struggling buyout deal.

Chrysler's MOPAR parts division is rumored to be for sale. So too is Chrysler's engineering division, which recently unveiled a plug-and-play electric-gasoline drivetrain the company says will be
on the road by 2010.

All of these deals — and the future of Chrysler as an automaker — hinge on whether Cerberus decides to sell the company off piecemeal and whether GM, Renault and other bidders can secure financing to complete their acquisitions.

Shortly after this blog was launched, I expressed my doubts that Cerberus would treat Chrysler as a long-term investment and whether Chrysler itself could survive. That was before the near total seizure of inter-bank lending and the worst month of retail car sales in 15 years.

While the ink has yet to dry on any of these deals, the decision by Cerberus to start shopping now speaks volumes.
If Chrysler has any future at all, it will likely be one far removed from it's Hemi-powered days of glory. Which — to nostalgic old salts like me — is an awful thought to consider.


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