Bizdom U 2009: Andrew Hwang

Last Tuesday the private equity firm Cerberus announced its $7.4 billion dollar agreement with DaimlerChrysler AG for an 80.1% ownership of their failing sector, Chrysler. DaimlerChrysler paid an additional $700 million dollars to make the transaction possible. As Cerberus takes over majority ownership, they are also responsible for the $18 billion dollar health and pension liabilities.

For the last six weeks, Tracinda (Kirk Kerkorian’s investment group), Magna International, and Blackstone have all been bidding for the automotive company. In fact, Russian billionaire, Oleg Deripaska, invested $1.54 billion dollars in Magna in hopes to build a partnership with them in order to purchase Chrysler in the near future. This, unfortunately, is no longer an opportunity for the automotive supplier and Russian tycoon.

Tom LaSorda, Chrysler’s CEO, claims that this is a positive change for the revitalization of the fifth largest automotive company. Although the UAW was reluctant to support the buyout, they understand that previous buyouts of automotive-related companies have resulted in very few layoffs. Contrary to the union’s belief, Governor Granholm was pleased by news by positively stating, “Today’s announcement by DaimlerChrysler AG that it will sell the Chrysler Group to Cerberus is a solid announcement for the state of Michigan and Michigan workers.” She believes that the commitment and determination to revamp the automotive company will, in fact, provide more jobs for state of Michigan.

DaimlerChrysler’s German side seemed to be pleased/relieved with transaction, yet still intends to help aid the growth of Chrysler. However, they stated that they will now focus more on their new line of Mercedes vehicles and their under performing Smart mini cars. On the other hand, Cerberus plans to invest in better quality products and a new “green” line of cars. They feel confident that their management team’s combined experience and highly qualified leadership has the ability to turn the company around.

Hopefully, the governors optimism about buyout proves to be correct. There is no certainty that Cerberus will maintain in Michigan because it is a New York Based company- it has no particular ties or loyalties to the state. However, there seems to be substantial hope for Chrysler’s future in Michigan because of the already existing infrastructure throughout the state.