Chrysler Reverses A 1998 Merger – 5/14/2007

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DaimlerChrysler, the European-American carmaker, was created in 1998 in a $36 billion merger. The company was born after the joining between Daimler-Benz and the Chrysler Corporation. Daimler-Benz is the German firm that makes the famous luxury brand, Mercedes-Benz while Chrysler Corporation is the third largest automaker in the U.S. 

The merger that was concluded in May 1998 was supposed to make both companies equal, but it soon became clear that the German company was taking over all the operations. Before that, Chrysler had gone through some rough patch: a near collapse in the 1970s and an incredible comeback in the 1980s under the stewardship of Lee Iacocca, who was the former Ford executive.

The merger had predicted a marketing magic and a savings opportunity, but that was not the case. Years after the two companies joined, Chrysler’s profits kept fluctuating. That was despite high expectations based on previous performance of the company’s Jeeps and minivans. Worse, Chrysler recorded a loss of $1.5 billion in 2006, according to the New York Times, even after the highly anticipated release of the company’s ten new models that year.

DaimlerChrysler was considering some changes to the Chrysler division. The company had even proposed selling or restructuring, including a layoff of 16 percent of its entire workforce. On May 14, 2007, the company announced that it was going to sell 80.1 percent of the Chrysler group to Cerberus Capital Management, the U.S private-equity firm that specializes in restructuring troubled companies. The portion (80.1 percent) of the Chrysler Group was burdened with high health costs, high pension, and reducing market share in the United States. Cerberus Capital was going to take a great risk by agreeing to take on billions of dollars in pension and health care costs.

Around that time, there were reports that General Motors Corp. was negotiating to acquire the company, but that did not materialize. Cerberus was the final winner with a bid of $7.4 billion. Cerberus paid the $7.4 billion that was mostly in the form of capital. DaimlerChrysler was then renamed Daimler AG and retained a 19.9 percent stake in the new company that was now called Chrysler LLC. The sale had ended a troubled nine-year relationship between Daimler-Benz and the Chrysler Corporation.

The former chief executive at Home Depot, Robert Nardelli, was appointed by Cerberus as the CEO, just days after the conclusion of the deal. However, that did not mean that things would be better. Amidst a growing global economic crisis (that largely affected the auto industry), Chrysler recorded a sale drop of almost 33 percent by September 2008. 

Car companies in the U.S. were significantly affected by the crisis; therefore, General Motors and Chrysler requested financial aid from the government to avoid bankruptcy. By mid-December 2008, Chrysler made an announcement that it was ending production in all its 30 plants as a result of the decline in the demand for its cars. Later, Chrysler filed for federal bankruptcy protection, and the company was expected to enter into a partnership with Fiat, an Italian automaker.

The sale had reversed a 1998 merger that was supposed to give birth to a trans-Atlantic automotive powerhouse. 

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