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The Big Picture: Cerberus faces a testing time

As one relationship separates, so another grows closer. DaimlerChrysler’s announcement that Cerberus has taken an 80% controlling stake in Chrysler – DaimlerChrysler will now become just Daimler AG – coincides with the news that General Motors is to take control of Cadillac supply in-house in the UK.

The Daimler-Chrysler link started out as a “merger of equals” and a “marriage in heaven” according to executives in May 1998 although it quickly became clear that Daimler was more equal than Chrysler. It ends nine years later in a messy divorce, one that has cost Daimler dear.

It forked out £18bn for Chrysler and sold it for £3.7bn. But it gets only £650m of that and actually is paying out £1bn to cover negative cashflow and a loan. So desperate was Daimler to get rid of Chrysler and its estimated £9.1bn pension and social welfare bill that it paid Cerberus to take it.

Analysts describe Daimler’s tenure as a financial disaster from start to finish – they reckon it has cost the company almost £25bn.

Can Cerberus revive Chrysler? Losses are expected for the rest of this year, but Cerberus will need to hold a tough line with the United Auto Workers unions to win concessions on wages and benefits. Its biggest challenge will be building cars that Americans actually want to drive.

Another American icon, Cadillac, is also facing change, at least in the UK where GM intends to take control in house for sales and marketing. The move is an admission that the current relationship with Kroymans, the European importer, and Pendragon, the solus UK retailer, is not working.

Expect to see a few changes in the way Cadillac is brought to market, while the formation of a premium automotive group also containing Hummer, Corvette and Saab, will raise the profile of the brands.

One note of warning is that Ford’s Premier Automotive Group union of Volvo, Jaguar, Land Rover and, before its sale, Aston Martin, has had limited benefit for the brands involved. GM will be hoping for better.

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