Mon
May 14 2007
02:48 pm
By: Andy Axel  shortURL

The Jeopardy Answer: Daimler-Benz bought it for $36 billion in 1998 and are now selling 80% of it for $7.4 billion today, around $5.9 billion in 1998 dollars (h/t Atrios).

The question: Who is Chrysler?

FRANKFURT, Germany (AP) -- German-based DaimlerChrysler said Monday it will sell almost all of money-losing Chrysler to a private equity firm for $7.4 billion, backing out of a troubled 1998 takeover aimed at creating a global automotive powerhouse.

Eighty percent of Chrysler Group, burdened by high labor costs and declining market share in the United States, will be sold to Cerberus Capital Management LP, a New York private equity firm.

The impact on Chrysler's 80,000 workers remained unclear, but Cerberus Chairman John Snow, a former U.S. treasury secretary, said the company plans to keep Chrysler's management and work with unions to return the struggling automaker to profitability.

And when John Snow says "profitability," he means that at least he will be well-paid, no matter how poorly that the company performs.

President George W. Bush appointed John Snow as Treasury secretary for his political acumen, not because he was a great railroad executive. But in his years as chief executive of CSX, the company's performance was middling at best. Nevertheless, Snow was by far the highest-paid chief in the industry.

In 1995, seven years ago, CSX, one of five leading railroad companies in the U.S., reported sales of $10.3 billion and profits of $1.1 billion. For 2001, sales were $8.1 billion and profits were $293 million.

Over the past six years, Snow was paid $29.3 million in salary and other cash compensation . This pay package was nearly twice as large as the second-best paid railroad CEO, Norfolk Southern's David Goode, who earned $16.8 million over that time.

Snow made his bones on Wall Street (such as they are) as a corporate freeloader:

In three of the past four years [between 1998 and 2002], Snow's company, CSX Corporation, paid no federal income tax at all.

In fact, instead of paying taxes, CSX supplemented its $934 million in pretax U.S. profits over the four years with a total of $164 million in tax rebate checks from the federal government.

Oooh, that magical marketplace... great for CEOs, if nothing else.

Socialist With A Gold Card's picture

This was in today's NYT: On

This was in today's NYT:

On April 18, Ron Gettelfinger, president of the United Automobile Workers, vowed he would fight the sale, declaring a private investor would "strip and flip" the company to earn a quick profit.

But Mr. Gettelfinger unexpectedly changed his thinking after the $7.4 billion sale of a controlling stake was announced early today. In a statement, he said the transaction "is in the best interest of our membership, the Chrysler Group and Daimler." ...

While Mr. Gettelfinger has expressed his support for the deal, his counterpart at the Canadian Automobile Workers union, Basil E. Hargrove, remained skeptical.

"I’m not at all comfortable with this new ownership makeup," Mr. Hargrove, known as Buzz, said in an interview. "The history of private equity has been to buy, then slash and burn a lot of jobs, and then get out with a lot of money for a handful of people."

I wonder why he changed his mind?

--Socialist With A Gold Card


"I'm a socialist with a gold card. I firmly believe we need a revolution; I'm just concerned that I won't be able to get good moisturizer afterwards." -- Brett Butler

Andy Axel's picture

I don't know, but are there

I don't know, but are there many more stupid decisions in the history of business?

"Hey, let's pick the worst company with the worst product line and the worst service record, and pay a premium for it!"

(Not that Daimler had the best service record itself going in, mind you. But a JEEP makes a Benz look downright reliable by comparison.)

____________________________

Georgia's in Florida, dumbass!

Socialist With A Gold Card's picture

Very few

At the time, I believed Daimler thought they could increase Chrysler's quality and improve the distribution of both brands by combining their retail operations worldwide.

The exact opposite happened.

--Socialist With A Gold Card


"I'm a socialist with a gold card. I firmly believe we need a revolution; I'm just concerned that I won't be able to get good moisturizer afterwards." -- Brett Butler

Sven's picture

It's a sadomasochistic

It's a sadomasochistic German thing. You wouldn't understand.

Photo Sharing and Video Hosting at Photobucket

Ve are doomed and filled with remorse, and it is most delicious.

Andy Axel's picture

Liebe mein affe-mienke!

I don't think "touch my monkey" is much of a business model.

Still, $7.9B in 2007 dollars? That's basically an assets-only acquisition. The capital held by Chrysler alone probably represents nearly that much.

I still am betting on "rip 'n flip" myself.

____________________________

Georgia's in Florida, dumbass!

Andy Axel's picture

Keeps getting better:After

Keeps getting better:

After adjustments, the net of the sale is -$650M to DaimlerChrysler.

But the German automaker, which will be renamed simply Daimler, will not actually get most of the money that Cerberus is paying for the once proud automaker. Instead Cerberus will contribute $5 billion to the Chrysler auto operations it will now control, with just a bit more than another $1 billion going to Chrysler's finance arm.

While Daimler will receive the remaining $1.4 billion of Cerberus's capital contribution to the sale, Daimler expects to have to cover another $1.6 billion in Chrysler losses before the deal closes. So Daimler estimates that it will end up paying out about $650 million to close the deal and that its earnings for 2007 will take a $4 billion to $5.4 billion profit hit because of charges related to the transaction.

Despite the hit forecast against profits to be taken in the near term, the market seems to like this move. We'll see how its 80,000 employees fare in the next couple of quarters.

____________________________

Georgia's in Florida, dumbass!

R. Neal's picture

Overheard at the recent car

Overheard at the recent car show:

Know how you pronounce "Daimler-Chrysler" in German?

"Daimler." The "Chrysler" is silent.

Cletus's picture

Overheard at the recent car

Overheard at the recent car show:

Know how you pronounce "Daimler-Chrysler" in German?

"Daimler." The "Chrysler" is silent.

That's a good one.

gttim's picture

John Snow, a former U.S.

John Snow, a former U.S. treasury secretary, said the company plans to keep Chrysler's management and work with unions

Translation: Figure out a way to screw retirees out of benefits while they take home all the money they possibly can.

R. Neal's picture

Figure out a way to screw

Figure out a way to screw retirees out of benefits

That's simple, and they don't even have to totally screw the retirees. Just raid the pension fund, run the company into the ground, and turn the pension over to the Pension Benefit Guaranty Corporation.

Then only taxpayers get screwed.

Andy Axel's picture

Just raid the pension fund,

Just raid the pension fund, run the company into the ground, and turn the pension over to the Pension Benefit Guaranty Corporation.

Then you too can go on to be a Bush cabinet member, or even Prime Minister of the United Kingdom.

____________________________

Georgia's in Florida, dumbass!

Factchecker's picture

According to Consumer

According to Consumer Reports M-B vehicles are dead last in reliability. I think Daimler lost it around the time they bought, er--excuse me--"merged with" (another phony buzz word exposed) Chrysler. They replaced their legendary straight 6 with a V6 that is almost literally a fraction of their V8, and let their stylists design cars uglier than many with Korean nameplates. Of course there are a few prestige M-B models that are wonderful, beyond their prodigious appetites to guzzle fossil fuel and spew carbon.

gttim's picture

Then only taxpayers get

Then only taxpayers get screwed.

No the retirees get screwed as well, since they only get a fraction of their promised pension.

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