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SCOTT JAGOW: Big news out of Germany this morning: Daimler is unloading an 80 percent stake in Chrysler after nine long years with the American carmaker. Daimler paid $36 billion back in 1998. It's selling this majority stake for five times less than that, $7.4 billion. The buyer is, wouldn't ya know it, a private equity group. Stephen Beard has more from our European Desk.
STEPHEN BEARD: Daimler-Chrysler has agreed to sell a majority stake in Chrysler to the New York-based private equity firm Cerberus.
Auto industry expert Dr. Peter Wells says he's surprised that a private equity firm is interested in the company:
DR. PETER WELLS: I think that perhaps they have not appreciated that in the car industry these sorts of businesses are very, very cumbersome. They are very difficult to move. And it's going to take an awful lot to turn Chrysler around, I suspect.
He says Cerberus, which is named after the dog which guarded the gates of hell in Greek mythology, may have bitten off more than it can chew. But Chrysler claims that as a private company it will be better placed for long-term recovery.
In London, this is Stephen Beard for Marketplace.
TEXT OF INTERVIEW
MARK AUSTIN THOMAS: After months of speculation and rumor, Daimler Chrysler has announced it will sell a majority of its stake in Chrysler to Cerberus Capital Management. John Reed is a car industry correspondent for the Financial Times. I asked him why Daimler chose Cerberus an American private equity firm.
JOHN REED: That's what we don't exactly know, to be honest, right now. My assumption is that it was the highest bid, although they were also taking other things into consideration, including what Cerberus was saying about the future of the company.
THOMAS: This sale does have the support of the unions?
REED: It does have the support of the unions. Ron Gettelfinger has said that it's "in the best interests of our UAW members as well as the Chrysler group and Daimler."
THOMAS: So the responsibility for pension and health care, that's now Chrysler's going to be taking care of that correct?
REED: Absolutely. The pensions and health care costs are going to be taken over by the Chrysler companies, which will as you know be 80 percent owned now by Cerberus, and just under 20 percent by DaimlerChrysler.
THOMAS: Daimler bought the company in '98 for $36 billion. They're selling it for $7.4 billion, not a good deal?
REED: Not a terrific deal, but as you know that reflects the fortunes of the U.S. auto industry and Chrysler has been hit I think especially hard by competition from other Asian producers and the value has absolutely shrunk. I men I think For or General Motors, if they were on the market, which of course they aren't, you might see some dramatic reversal of fortunes.
THOMAS: The board still has to approve this, I assume the chances of that are pretty good?
REED: I think the chances are extremely good because DaimlerChrysler has been under pressure form shareholders to do something about Chrysler whether it was turning it around or to sell it and indeed now that a sale is on the horizon with a good buyer, I think there's no question it's going to go through.
THOMAS: John Reed is a car industry correspondent for the Financial Times. Shareholders in Europe are excited about the news. The company's stock shot up more than 7 percent today.