Cerberus To Give Up Chrysler Stake In Wake Of Fiat Alliance

Cerberus Capital Management, LP is the majority stakeholder in Chrysler LLC, a privately held automaker. Due to the current economic climate, Cerberus will cede its ownership in Chrysler as the automaker seeks an alliance with Fiat sPa, the Italian auto giant.

When President Barack Obama announced his plans for General Motors and Chrysler on March 30th, automotive analysts honed in on the details in a bid to understand what the two companies were up against. GM was given sixty days to submit its structuring plan while Chrysler was told to form an alliance with Fiat sPa or forget about remaining in business.

Clearly, Chrysler's position is all the more dire for the simple reason that the company is smaller and doesn't have much of a presence beyond Canada and the United States, its top markets. The automaker has also seen a greater drop in sales than its chief rivals and has no new products in the pipeline which would suggest that the company could operate independently for long.

Not given much press has been the realization that Cerberus Capital Management LP, the private equity company that purchased an 80.1% stake in Chrysler from Daimler in 2007 will have to give up its ownership if an alliance with Fiat is forged. Currently, Daimler owns 19.9% of Chrysler while Fiat is to gain a 20% upon forging its alliance with Chrysler. The remaining shares will be owned by the federal government who will seek to recoup its investment in Chrysler over the next several years.

Should Chrysler return to solvency, the automaker would be required to pay off what it owes to the US government before Fiat can claim a profit. Indeed, once Chrysler's debt has been resolved, then Fiat could increase its share in Chrysler, perhaps buying out the federal government's share in entirety.

Cerberus will still own Chrysler Financial a separate managed financing company for Chrysler vehicles. That company will also be required to repay government loans, to the tune of two billion dollars before Cerberus can tap the company for profit.

Chrysler also owes the United Auto Workers billions in retiree health care coverage costs and other worker related expenditures. Should the automaker's alliance with Fiat collapse, then the company will likely be forced into Chapter 7 bankruptcy and its assets liquidated. Chrysler owns quite a few manufacturing plants in the United States and Canada and has several products which could be sold to other automakers including its Jeep line, Dodge Ram pickup truck and its family of minivans.

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