By Sholnn Freeman and David Cho
Washington Post Staff Writers
Tuesday, March 6, 2007

The leader of the Canadian Auto Workers warned against private-equity control of Chrysler, calling it the "worst-case scenario" for the automaker and a prelude to plant closures and worker layoffs.

"Our fear is private equity," Buzz Hargrove, president of the CAW, said in an interview yesterday. "They are not out to build cars. It could mean throwing a lot of people out of work and then reselling" the company.

Hargrove's comments come as private-equity firms are poring over Chrysler's internal financial documents. Blackstone Group and Cerberus Capital Management are among the firms assessing what it would take to acquire Chrysler. Hargrove said he has talked with representatives from a private-equity group, which he did not name.

It was not clear how other big unions at DaimlerChrysler regard the prospect of private-equity ownership of Chrysler. Ron Gettelfinger, president of the United Auto Workers, has not spoken publicly about the implications. He is seeking an active role in the division's fate as a member of the German company's supervisory board. For their part, some German labor officials have taken another view, questioning whether the continued combination of the two carmakers is necessary.

Last week, however, the UAW, CAW and the German union IG Metall issued a joint statement warning management that moves to dump Chrysler have caused "severe anger and fear" among Chrysler workers. The unions demanded "full disclosure in regards to any and all prospects" related to the process.

The CAW represents about 9,500 workers, or 12 percent of Chrysler's union workforce, at four manufacturing facilities in Canada, including two assembly plants.

Other companies, such as General Motors and Magna International, a large parts supplier, are also considered possible buyers of Chrysler. Hargrove said he had talked with Magna officials about a Chrysler bid.

"There are not many people who are going to buy it without some understanding with the union," Hargrove said. "In a sense, people are going to have to work with the union."

Labor peace could be pivotal to any deal to separate Chrysler from the marriage nine years ago that formed DaimlerChrysler. The transatlantic merger was viewed as a symbol of corporate consolidation in the 1990s but fell victim to intense U.S. competition and an inability by German managers to harmonize two different companies.

Blackstone and Cerberus are no strangers to big deals. Blackstone, in particular, made a splash with its $39 billion acquisition of Equity Office Properties Trust in February, which was at the time the largest leveraged buyout in history.

Blackstone also is raising a new $20 billion buyout fund that would be one of the largest private funds in the world. In 2003, Blackstone paid $4.7 billion to become the majority owner of TRW Automotive Holdings, the world's largest manufacturer of auto-safety equipment, such as seat belts and air bags.

Cerberus moved into the auto industry more recently. Last year, it bought a 51 percent stake in GMAC, the financial services unit of GM, and is leading an investment group to buy Delphi, GM's largest auto parts supplier, which is operating under Chapter 11 bankruptcy protection.

A spokesman for Blackstone declined to comment on the firm's interest in Chrysler. Cerberus did not return calls seeking a comment.

David Stowell, professor of finance at the Kellogg School of Management at Northwestern University, said any private-equity suitor would have to win over Chrysler's unions.

"You have massive amounts of cash accumulating in private-equity funds, and they want to put it to work," he said. "But I would be surprised if any private equity firm would pay . . . without having some discussion with unions and retirees in advance to see if they can strike a deal. If they can, then it becomes a very interesting and doable deal for private equity."

Because private-equity firms can borrow huge amounts of money with favorable terms, they make natural partners for Detroit's major players, which are steeped in debt, analysts said. But such firms also would look to cut costs wherever possible.

Putting a price tag on the Chrysler division is difficult because it is closely integrated into its parent company. The value of a deal could change dramatically depending on how it is structured and how much of Chrysler's debt the parent company is willing to keep, analysts said.

A Morgan Stanley research report estimated Chrysler's market value at $6.5 billion, or about one-sixth of the $36 billion that Daimler-Benz paid for Chrysler. That price would be 10 percent of Chrysler's annual sales, making it the "cheapest car company in the world," the report said.

Chrysler is weighed down by an enormous debt burden. A report by Merrill Lynch put Chrysler's liabilities at $52.5 billion, with $31.4 billion in pensions and the rest from post-employment benefits like health care. The estimate exceeds the largest leveraged-buyout offer on record, last week's $45 billion deal for the Texas utility TXU, by private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts.

Staff researcher Richard Drezen contributed to this report.