DaimlerChrysler's Corporate Divorce
by: evander
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Word Count: 718
After nine years of
unprofitable merger DaimlerChrysler has finally decided to end their
partnership. Daimler-Benz and Chrysler have signed their divorce papers last
Monday in an auditorium at an aging Mercedes-Benz factory.
The split up was deemed best
for both companies. On the side of Daimler-Benz the sale of its money-losing
American arm has saved it from further loss and now it can start focusing all
its efforts to its profitable luxury cars and trucks.
On the other hand Chrysler for
its part is given a new chance to reinvent itself free from liabilities and
worries. Its new partner the Cerberus is giving the automaker all the
opportunity and help that it needs to recover.
The divorce was not without a
price; Daimler-Benz has to share $677 million cash as part of its out-of-pocket
outlay in the $7.4 billion transaction. The said amount is part of the deal for
Cerberus to take Chrysler off Daimler’s hands. But despite the cash outlay that
Daimler has to share it still at the advantage since Cerberus will also be
shouldering the nearly $18 billion in health care and pension liabilities
however comparing the whole deal to what Daimler has paid for Chrysler which
was then valued at $36 billion, the new deal can be considered as a humiliating
comedown.
As of now it is not yet clear
what Chrysler’s long-term goals are but Cerberus has dispatched its chairman
John W. Snow who is the former secretary of the Treasury, to Stuttgart and to
create a buzz about the future of Chrysler as well as to reassure managers and
workers that the investment firm is not going chop Chrysler to pieces as
earlier reported.
Although most would probably
think that Daimler has the bad end of the bargain but surprisingly the
automaker doesn’t think that way, as a matter of fact they considered
themselves having the good end of the bargain. The company’s businesses that
include buses, trucks, and luxury cars are among the fastest growing and the
most profitable segments in the industry. And despite the setback that
Mercedes-Benz producer of high quality Mercedes
spoilers has
experienced which was due mainly to quality concerns and eroding profits it is
on its way to recovery.
Although without Chrysler,
Daimler would become smaller but to offset such loss it will gain many benefits
such as a stronger balance sheet, a hoard of cash and a better focus. Daimler
would not totally lost Chrysler since it still owns 19.9 percent of stake in
Chrysler.
Sadly instead of the wonderful
profitability dream, Daimler was faced with the unforgiving vagaries of the
American car market. Last year alone Chrysler lost $1.5 billion and the losses
are expected to continue this year. This is too much to bear for Daimler that
finally CEO Zetsche has decided to let go of its money-losing American arm
rather than to continuously bear the pressure on its profits and share price.
But in fairness to Daimler just
like a good partner it has exerted all efforts to help Chrysler despite the
fact that it has brought more losses than gains on the partnership.
Mr. Zetsche was even gracious
enough to say that Chrysler did not drain the cash from Mercedes. He said that
it was not all losses; Chrysler was also able to generate nearly $15 billion in
cumulative profits during its stay with Daimler however most analysts think
that Daimler could have found better uses for the cash instead of spending it
on Chrysler. Like for instance, Mercedes-Benz could have used the fund to
produce more innovative and attractive cars that can compete with other German
rivals like BMW and Audi.
And finally the residual stake
in Chrysler would mean that they would still have close ties to the company and
CEO Zetsche said that despite the difficulties Mercedes and Chrysler have
successfully developed power trains in which both companies have shared in
purchasing the raw materials and shared logistics systems. CEO Zetsche is also
hoping that they will still be engaging in more ventures with Chrysler in the
future.
About the Author
Dwyane Thomas is a part time cook and full-time auto-enthusiast. This 31-year old Civil and Environmental graduate is a consultant at one of the engineering firms in Pennsylvania.
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