Sale of Chrysler will cost DCX $673m
In the history of big business, few mergers and takeovers can hold a candle to the $36 billion "merger of equals" that Daimler pulled off in 1998. When the dust settled, DCX stock was up in the stratosphere, and German executives were hailed as conquering heroes. Only nine years later, the folks from Stuttgart were so anxious to dump the albatross that was Chrysler, that they paid Cerberus $673 million to take the legacy cost-laden automaker off their hands. Sure, the initial reports stated that Cerberus had to pay $7.4 billion for the right to own the Pentastar, but all that money went directly to the Chrysler brand, which Cerberus will own as of July.
If it seems like Daimler lost out huge, take the following into consideration. First, the Benz boys rid themselves of over $18 billion in future pension costs, which is a monumental amount of money for any company to have hanging around their neck. Second, Daimler retains 19% ownership of the Chrysler Group, which means Daimler can continue to achieve economies of scale on technologies like diesel engines. Third, and perhaps most importantly, DCX stock spikes have catapulted the market value of the German automaker by a staggering $27.7 billion.
Of course Cerberus basically got a free, multinational corporation whose assets are probably still worth more than its considerable liabilities. Plus, a looming showdown with the UAW could result in some relief from the monumental legacy costs that scared off Daimler in the first place. We're with the Detroit News on this one, it looks like a win for both companies. Now lets hope that Cerberus knows some designers that know how to make good-looking interiors.
[Source: Detroit News]
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Reader Comments (Page 1 of 1)
Avinash machado 8:30AM (6/29/2007)
Also I hope they bring back the Plymouth brand. The new Hornet would work best as a Plymouth. Also the PT Cruiser could be rebadged as a Plymouth.
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BLS 8:41AM (6/29/2007)
Plymouth muscle cars just seem right to me. For some reason more so than Dodge but I wasn't around during the muscle car era.
I don't understand how Chrysler is $18 billion underfunded. The pension should have assets. However the retiree medical plan could be that much and legally allowed to be unfunded. Just seems rather high.
seoultrain 10:50AM (6/29/2007)
All following remarks don't include the plymouth prowler, a great icon, but a niche car nonetheless.
all this talk about plymouth is weird to me. Sure, i guess you guys have some sentiment invested in the brand, but near the end of its life, plymouth was being run into the ground.
It's whole brand philosophy was out of whack, since dodge hadn't moved upmarket enough to warrant a lower-class sibling. Chrysler buyers basically had the chance of buying a dodge, or a stripped-down, uglier dodge for a little less money. Perhaps this downfall was Daimler's fault, but there was no saving the Plymouth brand.
plymouth died in 2001, not too long ago. How long has it been since you've seen one? At least a couple years for me.
anyway, if chrysler is going to bring back plymouth, they need a better plan. Reviving a rebadged mistake will not be even remotely successful.
Stuart 2:29PM (6/29/2007)
$673 million dollars may shound like alot but compared to the health care cost of $18 billion that nothing. Its just a shame they didn't get rid of chrysler completely and sell the remaining 19.9% leaving chrysler to make it own future hopefully without the use of any Mercedes technology.
Daimler is at its best when its alone and the share prices show.
P.S. How anyone thinks Chrysler can go even more upmarket is beyond me. I sure that Zetche said something about how they tried but people were not willing to pay the price so how some private equity firm with no experience will do better is just plain stupid. Wolfgang needs to go home back to Mercedes to put his experience to good use.
AMGoff 9:01AM (6/29/2007)
Good! Although I would have been twice as happy if they had to pay twice as much. I can only hope there are better days to come.
As far as the comment above about bringing back Plymouth... I could not agree more. When Diamler axed the Plymouth Brand they left the Chrysler Group with an incomplete brand lineup. Once they lost their bread and butter, mass-market people movers both Chrysler and Dodge suffered in having to make up the difference.
With the resurrection of Plymouth Chrysler will actually have the leanest and most logical brand lineup in the auto industry. Now all they have to do is limit the inevitable amount of badge-engineering and give each brand distinctive models in order to make this work.
Chrysler can move more upscale and abandon the low-end. There should not be a Sebring sedan or a base 300 under the winged badge. Dodge can focus more on performance and again drop their aspirations for the low-end, ie - bye bye Caliber. And once the venerable Jeep gives the Compatriot twins over to Plymouth they can resume doing what they do best, that is making fuel efficient SUVs for people who actually take their truck offroad from time to time. Listen Cerberus there should be no Chrysler ute that is not a Jeep!
I've often thought they should spin their truck line to it's own brand thereby leaving five clearly defined brands - upscale/performance/economy/trucks/utes.
Nonetheless, Walter P. Chrysler said it best, there is no Chrysler without Plymouth.
Calling all Moparphobes... it's feeding time!
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bmoredlj 9:08AM (6/29/2007)
With all of the fancy, hard-to-get-into automotive design colleges in this country, it's hard to believe Chrysler's had to leave the design of their interiors to the mail room guy. Maybe they can't afford anyone qualified.
Worst case scenario - they give the job to a rat who understands english and can manipulate the mail room guy to do his bidding by pulling on his hair. How embarassing would THAT be...
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AMGoff 9:37AM (6/29/2007)
Embarrassing yet true! While the exterior styling of the new Sebring sedan is starting to grow on me I made the mistake of sitting in one at this year's Philly Autoshow. Not only was it the mailroom guy but you failed to mention he had one eye, a speech impediment, and a drinking problem! I can say however that they've made some progress with the interior of the new 'bring convertible, at least in Limited trim. Maybe another good reason for resurrecting Plymouth would be to make hard, nasty cloth seats an option-only feature on all Chryslers.
Ron 9:17AM (6/29/2007)
There's a line in Guitar Hero that says you shouldn't wear a guitar above the beltline lest you be mistaken for a member of the Beatles!
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Juan 10:24AM (6/29/2007)
Pfft, I would have undercut Cerebus' deal if only Daimler would have asked. I would have taken Chrysler for only $500 million!
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Kumar 10:28AM (6/29/2007)
Hopefully the 19% benz stake will mean that we'll have access diesel technology (and not sell our junk across the pond with VW engines like before when we had access...)
So, what's toyota's stake in subaru, someting similar?
Something tells me Chrylser will be way behind the 8 ball on diesels though, when they were in the perfect position before the sale to have had it as an option in all of their vehicles by next year. Hey, if Ford can offer 4wd in all their sedans, why not diesel a la VW?
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Frank 12:41PM (6/29/2007)
Seoultrain, you are right. You can't bring back Plymouth unless you do it right. I would try something like Scion. the focus should be value/economy and fun. Not all Chrylser dealers would have to carry Plymouth.
Here's my plan:
The return of Plymouth
Phase 1 - Re-introduce a few exclusive models as a sort of “nostalgia” or “boutique” brand.
Rules for Phase 1: Build in a limited number. Do not offer rebates. If a few are left over at the end of the model year, offer the dealers a discount which they can pass on to the customers (ala the imports) but do not, put “cash on the hood”. Ever. If there are still a few left after that buy them back and destroy them. If you don’t build many of them you should have little or none left over. If the public demand exceeds the supply so be it. At this stage you do not want to over produce and you want to build exclusivity to create brand “buzz”. Also if the venture fails, you only built a few thousand units that you can’t sell instead of tens of thousands trying to re-launch the brand. During this time market studies should be made as to what potential customers would want in a future Plymouth.
A good place to start with Phase 1 would be a version of the upcoming Challenger. The Barracuda is fondly remembered and a limited run of these would have an instant appeal. In this case badge engineering would make sense. Just change enough in the design ques so that people recognize it as Barracuda. I have already seen drawings and renderings of such a car on the web and in magazines. Next would be a Fury or Grand Fury version of the upcoming LY platform. This would be a “value” vehicle de-contented as much as possible from the 300C. Simply use the 80/20 rule. Keep the 20% of the features that 80% of the customers want. A/C, good stereo, ALL the safety features. Forget leather, extra sound deadening, auto dimming mirrors, auto windshield wipers, navigation, auto climate control, and the Hemi. Make it a roomy automobile at a good price.
Phase 2 – Take the boutique brand mainstream. If there is going to be a next gen PT Cruiser put it back as Plymouth where it belongs. Reintroduce the Voyager minivan. If you must make a Town & Country then keep it as a long wheel base only. Voyager should be primarily short wheel base and no AWD option. Economy car: decide which make gets a hatch and/or wagon and which gets sedan. So Plymouth will have one version and Dodge the other. If and when Plymouth gets back to having a C, D, and E segment car in their line up make these the fleet/rental units. You can still offer Chryslers, Jeeps, and Dodges to rentals but only in limited numbers, just like you can rent BMW, Volvo, etc. Not enough to hurt the image or resale values. When a traveler rents a DCX mainstream non-premium rental it will be a Plymouth.
Rules for Phase 2: No trucks (I don’t consider a minivan a truck), no SUV’s, and no luxury. Sporty, fun, and retro allowed. All safety features should be standard, except for the latest technological developments. These should have every type of airbag, stability control, ABS, and traction control. Families should be a primary market.
Give dealers a choice on which brands to offer: Jeep/Chrysler/Plymouth, or Jeep/Chrysler, or Chrysler/Plymouth, or Jeep/Plymouth. This way a dealer could tailor his products to his local market. Why would a dealer in a rural area want to carry Chrysler when his customers want trucks, off-road, and value vehicles? Why would a dealer in a larger metro area with limited floor space want to sell low cost Plymouths when his upscale clientele want to buy $40k Jeeps and $37k Chryslers? Obviously most would want to carry all three, but this would give some a better chance at matching their stores to the local market.
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Don 2:16PM (6/29/2007)
Thanks for nothing you German bastards! You suck!
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Don 2:17PM (6/29/2007)
And before everyone gets in a tizzy...I am, in fact, German.
whofan 3:21PM (6/29/2007)
I keep thinking Plymouth Roadrunner. Retro off the 67 Runner This is the way to bring Plymouth back. Wifes vehicle, 99 Plymouth Voyager.
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spots 12:09AM (6/30/2007)
There was NO '67 Road Runner; it came out in 1968.
lawstud 7:01PM (6/29/2007)
from what I understand about investment firms like Cerebus is that they will load the company with a bunch of debt then dump it and make off like bandits.
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AMGoff 5:16PM (6/29/2007)
Stuart, just answer one simple question for me.
How does Dieter's mustache feel around your bunghole?
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AR2 8:14PM (6/29/2007)
AMGoff and Frank,
I hear both of you in regards to the decision of bringing Plymouth back. I think disregarding and then dropping Plymouth was a major reason for Chrysler's collapses over the years. Here was a brand that was Chrysler's best selling brand decade after decade, was the support that help build and hold Chrysler Corp. over the years, and was a nature fit for the value/economy, mainstream segment and what do they do? They let it wither over the years until people see Plymouth as "that rebadged Dodge", or that "POS Plymouth".
The thing the people in Auburn Hills and Highland Park didn't realize is that the Chrysler brand can't be high priced and high volume. It just doesn't work. There is no problem having high priced Chryslers like the first Pacifica and 300C, but they shouldn't expect large sales numbers either. Having the lower priced Plymouth handle the low priced, volume market would have kept the piece of junk Sebring, lower priced Town & Country, PT Cruiser, and 300s out of the Chrysler lineup.
Unfortunately, I don't see Plymouth coming back. I would be greatly surprised and astonished if Cereberus would allow such a thing. They want to cut costs, not add more costs with another brand. Personally, I think it makes sense to bring Plymouth back, but I don't see the money moving that freely in Auburn Hills to make it happen. And thus, that is why this Mopar fan has pretty much left for green pastures. This isn't Walter P. Chrysler's company anymore - it is a Cerberus entity with the Dodge and Chrysler nameplates glued on.
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Joe 10:21PM (6/29/2007)
I hope they have good designers not just for the interiorm but exterior as well, Chrysler doesn't have a single good looking vehicle in my opinion, even though I own one ;-)
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Barney 11:51PM (6/29/2007)
Daimler thought they would have a car that would do in America as well as the Mercedes Benz does in Europe. People who thought they would get an American car with MBs reputation were disappointed. Neither party gained and those who though the merger would be successful are hiding under the bed.
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