Cerberus: Daimler misled on Chrysler health

Setting the stage for a potential legal battle, the New York-based private equity firm today charged the German automaker with ‘intentionally. . . misrepresenting’ to Cerberus the state of the auto-lending market leading up to its investment in Chrysler last year. Daimler called the accusations 'absurd'.

Cerberus Capital Management has accused Daimler AG of intentionally misleading the firm about the state of the auto-loan market when the two agreed their $7.4 billion Chrysler deal last year.

A person familiar with the situation said Cerberus is considering all “strategic options”, including legal action.

“Obviously, [Cerberus] would prefer to have a peaceful and mutual resolution,” the person said.

Daimler “intentionally and materially breached its obligations under the relevant contracts relating to the Chrysler transaction”, according to a Cerberus statement released today. “These serious breaches include, but are not limited to, misrepresentations relating to extraordinary changes in underwriting practices with regard to financing and leasing, as well as non-ordinary course lending and leasing practices.”

Daimler’s conduct led to the “impairment of Chrysler’s business and added to and multiplied the adverse effects of the current automotive and macro-economic environment”, the firm said. Cerberus declined to comment beyond the press release.

Cerberus made the allegations public today after Daimler issued a statement blaming Cerberus for failed negotiations between the two parties over the firm buying Daimler’s remaining 19.9 percent stake in Chrysler.

Daimler said Cerberus has made “exaggerated demands” that “exceed the value of Cerberus’ investment in Chrysler”.  Daimler also refuted Cerberus’ allegations of misconduct.

“Daimler rejects these absurd allegations and the claims derived therefrom as being completely without substance,” Daimler said.

Daimler acquired Chrysler in 1998 for $36 billion, creating DaimlerChrysler.

The two parties have been in negotiations for several months over Cerberus buying out Daimler’s remaining stake in Chrysler. Since Cerberus made its initial investment in the US vehicle maker, Chrysler has struggled, losing $1.6 billion in 2007 and seeing its US sales drop. Cerberus has said it will eliminate 28,000 jobs at Chrysler and has sold $500 million worth of the company’s assets.

Chrysler is among the “Big Three” US automakers to have recently requested emergency funds from the US government.