MICHELE NORRIS, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
ANDREA SEABROOK, host:
And I'm Andrea Seabrook.
Nearly a decade after Daimler Benz's historic, quote, "merger of equals" with Chrysler, the German-American marriage is essentially over. DaimlerChrysler announced today that it is selling most of its U.S. division to Cerberus capital, a New York-based private equity group. The deal for 80 percent of Chrysler is valued at $7.4 billion, though most of that money won't be going to Germany.
Our coverage of the story begins with NPR's Jack Speer.
JACK SPEER: Back in the late 1990s, Daimler had big plans to go global, and it was willing to pay. The company laid out $36 billion to acquire Chrysler. When the merger was announced, there was a lot of talk about synergies and complimentary product lines.
Juergen Schrempp was Daimler's chairman at the time.
Mr. JUERGEN SCHREMPP (Former Chairman, Daimler): We will have the size, the profitability and the reach to take on everyone.
SPEER: And here's then Chrysler Chairman Robert Eaton.
Mr. ROBERT EATON (Former Chairman, Chrysler): Each company was a strong competitor, very profitable, and could have grown independently. Together, we believe, the potential is literally unlimited.
SPEER: But fast-forward to today, and you have the story of a marriage that went awry. At a news conference in Stuttgart this morning, DaimlerChrysler chairman Dieter Zetsche acknowledged the expected synergies of putting the two companies together never materialized. And there was another painful admission - Zetsche had to acknowledge that Daimler will actually be paying Cerberus to take Chrysler off its hands.
Mr. DIETER ZETSCHE (Chairman, DaimlerChrysler): The transaction will result in a net cash outflow for DaimlerChrysler of (0.5 billion.
SPEER: So even though Cerberus is paying $7.4 billion, the transaction will cost Daimler more than half a billion dollars U.S. That's because most of the money is being invested in the new Chrysler, and what remains isn't enough to cover certain expenses that Daimler will have.
Mr. KEVIN TYNAN (Auto Industry Analyst, Argus Research): I guess it's the case not unlike, you know, the dilapidated car in your front yard that you actually pay the guy to take it away.
SPEER: Kevin Tynan is an auto industry analyst at Argus research. He says Chrysler's mounting losses and its huge overhang of pension and health care liabilities made it impossible for Daimler to get much money for its American division.
But Cerberus, a private equity firm known for aggressively cutting cost and turning around troubled companies, obviously thanks that it can succeed where Daimler failed. John Snow, the former U.S. treasury secretary and now Cerberus' chairman, joined Daimler officials in Stuttgart today.
Mr. JOHN SNOW (Chairman, Cerberus Capital Management): We're delighted and pleased to have come through this as the successful bidder. We're well positioned to put Chrysler back on top.
SPEER: It's not clear what Cerberus plans to do to rein in Chrysler's cost structure, though David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, says with the merger, it will almost certainly be a much smaller company.
Mr. DAVID COLE (Chairman, Center for Automotive Research): Their objective, very clearly, in private equity is making money. It's not benevolence for dealers or workers; it's making money, and they're going to try to do what is necessary to assure that kind of financial return.
SPEER: Cerberus may plan to get those returns by eliminating jobs and reducing retiree pensions, but it didn't announce those things today. If that is the plan, it's likely to be more pain for Detroit. But many analysts say such cuts are necessary if the U.S. automobile industry is to fend off growing competition.
Jack Speer, NPR News, Washington.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.