DCX focuses on Cerberus

Equity firm in one-on-one talks about Chrysler sale

Bill Vlasic and Christine Tierney / The Detroit News

DaimlerChrysler AG appears to have focused in on Cerberus Capital Management as the top contender to buy its ailing Chrysler division, according to people familiar with the situation.

While the German automaker has been engaged in detailed talks with Cerberus for the past two weeks, two other contenders for Chrysler appear to have been relegated to the sidelines for now.

People close to the sale process said that Blackstone Group and Magna International Inc. have not been involved in advanced talks with DaimlerChrysler since submitting formal bids for Chrysler last month.

By contrast, Cerberus officials -- led by former Chrysler chief operating officer Wolfgang Bernhard -- have been holding extensive discussions on various aspects of a possible deal.

"They are really rolling up their sleeves and getting into detail," said one person with knowledge of the talks.

One area under intense discussion, sources say, is how Cerberus would absorb Chrysler's auto-financing operations into GMAC Financial Services, the former General Motors Corp. unit now controlled by Cerberus.

With DaimlerChrysler's management and supervisory boards set to meet early next week in Germany, people close to the process said a decision could be made soon on a preferred buyer for Chrysler.

Cerberus, one of the nation's leading private-equity firms, has been a prime candidate to buy Chrysler since DaimlerChrysler CEO Dieter Zetsche essentially put the U.S. division up for sale in mid-February.

The bid by Cerberus was buoyed by the hiring of Bernhard, who helped lead Chrysler's last comeback during his tenure as chief operating officer from 2001 to 2004.

Bernhard has been joined on the Cerberus team by other auto-industry veterans including former Ford Motor Co. marketing executive Robert Rewey.

In addition, Cerberus is said to be working closely with the influential research firm J.D. Power and Associates and its senior vice president Gary Dilts, who previously headed Chrysler's sales staff.

One person close to the talks said Chrysler management has taken a favorable view of the bid by Cerberus. A DaimlerChrysler spokesman on Friday declined comment on the status of negotiations.

The ongoing discussions with Cerberus appear to dampen media speculation that Canadian auto-supplier Magna is the favorite to win the Chrysler auction.

Media reports in Germany have recently portrayed Magna as the favored suitor because of DaimlerChrysler's close business ties to the Canadian firm and its outspoken chairman, Austrian-born Frank Stronach.

But Stronach appeared this week to be scaling back his company's drive to take over Chrysler.

At a news briefing this week in Toronto, Stronach said that Magna would be content to be one of four or five firms in a Chrysler ownership group.

Magna has already identified one partner, the Canadian investment firm Onex Corp.

Analysts had previously seen Magna as a strong bidder because of its industrial experience and Stronach's ambitions to be a major player in the global auto industry.

"The charm of Magna's bid was that he was someone with a strong vision," said Christoph Stürmer, a Frankfurt-based analyst for the consulting firm Global Insight.

"Now he's kind of backing off."

Magna may also have harmed its chances to buy Chrysler with its surprising announcement this week of an equity tie-up with Russian metals tycoon Oleg Deripaska.

In a complex transaction, Magna is selling a major stock stake worth $1.5 billion to Basic Elements, a privately-held Russian conglomerate controlled by Deripaska.

Deripaska is a 39-year-old billionaire with close ties to Russian President Vladimir Putin.

Like many of Russia's new tycoons, Deripaska has been dogged by controversy although he has not been accused in Russia of any wrongdoing.

Last year, however, the U.S. government revoked his visa on concerns that he had not been entirely honest in statements to the Federal Bureau of Investigation on possible ties to organized crime, according to reports. A spokesman for the FBI would neither confirm nor deny that.

One U.S. auto analyst said Friday that Magna's involvement with the Russian investor could generate regulatory problems for a Chrysler deal and possibly opposition by the United Auto Workers.

"The new association with (Deripaska) lowers the probability of success for Magna's Chrysler's bid as regulatory hurdles in the U.S. will be tougher to clear and the UAW is less likely to be cooperative," said John Murphy of Merrill Lynch.

Deripaska's status as one of Russia's youngest industrial barons may also clash with DaimlerChrysler's stated desire to find a stable, long-term solution for Chrysler and its employees.

"He (Deripaska) may be a good match for Stronach, who is also a frontier-spirit kind of guy," Stürmer said. "But he's on the other side of the moon for DaimlerChrysler. They've had oligarchs as customers, but I don't think they've had any of them as a business partner."

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.