Mixed reactions greeted Monday's announcement that Cerberus Capital Management will pay $7.4 billion to acquire controlling interest in the Chrysler Group from DaimlerChrysler AG.
An affiliate of Cerberus will hold an 80.1 percent stake in new Chrysler Holding LLC, while DaimlerChrysler will keep a 19.9 percent when the proposed deal is completed, most likely by the third quarter. DaimlerChrysler bought the U.S. automaker in 1998, with the expectation of creating a leading global company.
"We were nervously waiting for something to happen," said Mark Lebo, general sales manager of Arnell Chrysler-Jeep-Dodge in Burns Harbor. "But it's not over with yet. When they negotiate contracts with the union, that will tell us a little more about how the new company will operate."
Cerberus has agreed to take on Chrysler's billions of dollars in pension and retiree health care costs, prompting United Auto Workers President Ron Gettelfinger to say early Monday that he supports the deal. The takeover is "in the best interests of our UAW members, the Chrysler Group and Daimler,' he said.
The deal should be good for the automaker and its dealerships because Cerberus has a lot of money behind it, which should give Chrysler stability in the coming years, Lebo said.
"There's a little uneasiness on how it will all pan out, in how it's going to affect Chrysler moving forward," he said. "But Cerberus hired one of the old Chrysler guys be its adviser. That's a good thing. At least there's a car guy in there who knows what's going on."
John Schultheis, sales manager of Bosak Chrysler Jeep in Merrillville, also said the announcement was welcome because it ends the speculation on "what's going on with Chrysler."
"The company purchasing them has a strong vision for the future and I think that's a good thing," he said. "Chrysler has had some very innovative designs that have gone very well, so I see (Cerberus' purchase) as a change from a long-term profitability standpoint."
However, Peter Morici, University of Maryland School of Business professor and former chief economist at the U.S. International Trade Commission, said the deal makes "little sense" because it doesn't address the auto company's three fundamental competitiveness problems.
Chrysler's legacy health care costs impose a severe disadvantage, Morici said.
"It is not clear how the legacy health care costs can be wholly removed from the cost of building vehicles without Cerberus sinking billions in new funds and partially frustrating the claims of present and future retirees," he said.
In addition, the automaker's hourly labor costs are higher than those of Toyota and other Asian manufacturers with facilities in North America because of the work rules, job classifications and other elements of the UAW contract, Morici said
"Despite Cerberus's strong track record of cutting costs in other firms it has acquired, the concession accepted by the UAW in deals with Chrysler, Ford and GM indicates a Cerberus-UAW deal will not completely and adequately align non-legacy labor costs with Toyota and other transplants in the United States," he said.
Plus, the new company will remain tied to Daimler in elements of vehicle development although Chrysler, along with Mercedes, has "some of the worst reliability and quality records" in their classes of cars, Morici said.
"A continued alliance would preserve some of the worst elements of the failed merger," he said. "Daimler has failed to put a good product on the road in North America, and a continued permanent alliance with Daimler would be foolish."
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