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How deep a cut will Chrysler unions accept?
Cerberus, in a $7.4 billion deal to buy control of the automaker, will try to turn it around.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the May 15, 2007 edition
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A deal to put Chrysler under new ownership also promises to open a new and difficult chapter for America's unionized auto workers.
The private buyout firm Cerberus plans to purchase a majority stake in the struggling US car company for $7.4 billion – a move announced with fanfare Monday.
But the big financial question is not what Cerberus will pay, but what the UAW will throw into Chrysler's pot.
The labor union has not, by itself, dug Detroit's automakers into their current hole of sagging market share. But analysts say America's iconic car companies will have trouble regaining their footing unless they can win significant cuts in their labor costs.
The parent company, Germany's DaimlerChrysler, lost faith in its own ability to turn its Detroit operations around. Now this task will fall to Cerberus, which specializes in restructuring and cost-cutting at the companies it buys.
"It may be the best hope for Chrysler as a company, and so in the long run it may be the best hope for the jobs of the Chrysler workers," says Joseph D'Cruz, an expert on the auto industry at the University of Toronto's Rotman School of Management. "But they're going to pay a price."
Cerberus, at least, hopes to extract a price.
The so-called private-equity firm, funded by big investors, is in the business of buying companies and taking them into private ownership – so their shares aren't traded on a stock exchange. Cerberus traditionally aims to squeeze out excess costs, with the goal of later reselling the firm at a big profit, in a public stock offering.
In the deal announced Monday, DaimlerChrysler AG said it will sell 80.1 percent of the Chrysler to Cerberus, with the sale closing by this fall. The $7.4 billion price is a steep discount to the $36 billion that Daimler-Benz AG paid in 1998 for North America's No. 3 automaker.
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