Daimler, Cerberus Feud Over Stake in Chrysler

German automaker Daimler said yesterday that the sale of its remaining stake in Chrysler has been complicated by the "exaggerated demands" of Cerberus Capital Management.

The price tags Cerberus put on Daimlers' 19.9 percent stake in Chrysler "exceed the value of Cerberus' investment in Chrysler," an 80.1 percent stake purchased for $7.2 billion last year, Daimler said in a statement yesterday.

Cerberus fired back in a statement saying the lengthy negotiations are the result of Daimler's own misconduct. Daimler "intentionally and materially" misled Cerberus before it sold Chrysler last year, the private equity firm said. Cerberus alleges that Daimler breached its contract by not disclosing Chrysler's leasing and financing practices prior to the sale.

"Daimler has, unfortunately, refused to recognize the gravity of the claims relating to its deliberate conduct that resulted in the impairment of Chrysler's business and added to and multiplied the adverse effects of the current automotive and macro economic environment," Cerberus said. "We are disappointed that Daimler has refused to negotiate in good faith in the face of the plain facts of which they are well aware."

Daimler, parent company of Mercedes, said the claims were "absurd allegations" and "completely without substance."

Chrysler's fate has been in flux for a number of years.

Daimler purchased Chrysler for $36 billion in 1998. The ownership failed to create the transnational auto powerhouse that the deal had promised. The goal was to combine the best of Germany's luxury carmakers with a mid-market American brand. But neither the union nor the new name, DaimlerChrysler, did much for the brand.

"It was being run very poorly," said Jim Hall, managing director of 2953 Analytics, an industry analysis firm. Daimler "had unrealistic expectations what it would get out of it, but at the same time it was cutting costs."

Losses mounted, and German shareholders clamored for a sale.

Last year, after purchasing a majority stake and inheriting Chrysler's $19 billion in employee benefit liabilities, Cerberus pledged to restore the automaker to its former glory. But the private equity firm was stymied by the global credit crunch and the worst U.S. auto sales in more than two decades. So far, the deal has been a drain on Cerberus. Chrysler lost $1.6 billion last year.

As Chrysler hemorrhages cash, Daimler has been seeking to cut ties with the money-losing investment. It assigned its remaining stake a book value of zero in third-quarter earnings reported last month.

Transferring the entire ownership of Chrysler to Cerberus could make a merger or sale of the automaker less convoluted. General Motors was interested in Chrysler until it began to run low on cash, making a merger financially unworkable. Still, Chrysler's management is actively seeking partnerships or alliances to try to make it more competitive.

Chrysler and its Detroit rivals will return to Washington next week to appeal for $25 billion in emergency loans. Cerberus has said that it will forego any benefits that Chrysler might obtain from federal aid.