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Daimlerchrysler's Corporate Divorce
by: Dwyane Thomas

After nine years of unprofitable merger DaimlerChrysler has finally decided to end their partnership. Daimler-Benz and Chrysler have signed their divorce papers last Monday in an auditorium at an aging Mercedes-Benz factory.

The split up was deemed best for both companies. On the side of Daimler-Benz the sale of its money-losing American arm has saved it from further loss and now it can start focusing all its efforts to its profitable luxury cars and trucks.

On the other hand Chrysler for its part is given a new chance to reinvent itself free from liabilities and worries. Its new partner the Cerberus is giving the automaker all the opportunity and help that it needs to recover.

The divorce was not without a price; Daimler-Benz has to share $677 million cash as part of its out-of-pocket outlay in the $7.4 billion transaction. The said amount is part of the deal for Cerberus to take Chrysler off Daimler’s hands. But despite the cash outlay that Daimler has to share it still at the advantage since Cerberus will also be shouldering the nearly $18 billion in health care and pension liabilities however comparing the whole deal to what Daimler has paid for Chrysler which was then valued at $36 billion, the new deal can be considered as a humiliating comedown.

As of now it is not yet clear what Chrysler’s long-term goals are but Cerberus has dispatched its chairman John W. Snow who is the former secretary of the Treasury, to Stuttgart and to create a buzz about the future of Chrysler as well as to reassure managers and workers that the investment firm is not going chop Chrysler to pieces as earlier reported.

Although most would probably think that Daimler has the bad end of the bargain but surprisingly the automaker doesn’t think that way, as a matter of fact they considered themselves having the good end of the bargain. The company’s businesses that include buses, trucks, and luxury cars are among the fastest growing and the most profitable segments in the industry. And despite the setback that Mercedes-Benz producer of high quality Mercedes spoilers has experienced which was due mainly to quality concerns and eroding profits it is on its way to recovery.

Although without Chrysler, Daimler would become smaller but to offset such loss it will gain many benefits such as a stronger balance sheet, a hoard of cash and a better focus. Daimler would not totally lost Chrysler since it still owns 19.9 percent of stake in Chrysler.

Sadly instead of the wonderful profitability dream, Daimler was faced with the unforgiving vagaries of the American car market. Last year alone Chrysler lost $1.5 billion and the losses are expected to continue this year. This is too much to bear for Daimler that finally CEO Zetsche has decided to let go of its money-losing American arm rather than to continuously bear the pressure on its profits and share price.

But in fairness to Daimler just like a good partner it has exerted all efforts to help Chrysler despite the fact that it has brought more losses than gains on the partnership.

Mr. Zetsche was even gracious enough to say that Chrysler did not drain the cash from Mercedes. He said that it was not all losses; Chrysler was also able to generate nearly $15 billion in cumulative profits during its stay with Daimler however most analysts think that Daimler could have found better uses for the cash instead of spending it on Chrysler. Like for instance, Mercedes-Benz could have used the fund to produce more innovative and attractive cars that can compete with other German rivals like BMW and Audi.

And finally the residual stake in Chrysler would mean that they would still have close ties to the company and CEO Zetsche said that despite the difficulties Mercedes and Chrysler have successfully developed power trains in which both companies have shared in purchasing the raw materials and shared logistics systems. CEO Zetsche is also hoping that they will still be engaging in more ventures with Chrysler in the future.

Article Source: http://articlecrazy.com

Dwyane Thomas is a part time cook and full-time auto-enthusiast. This 31-year old Civil and Environmental graduate is a consultant at one of the engineering firms in Pennsylvania.

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