20 percent = zero
At the end of June, Daimler valued that investment at about $219.6 million.
Today, Daimler said the book value of that 20-percent stake is zero.
That’s right, zero.
To put that zero in perspective:
A year ago, after Daimler sold 80 percent of Chrysler to U.S. private equity firm Cerberus Capital Management, the German automaker listed the value of its minority interest at $1.8 billion.
Ten years ago, Daimler paid $36 billion for all of Chrysler.
For Daimler to disclose that the book value of its stake has come to nothing, and to do it at a time when it is in talks to sell that stake to Cerberus, is bad news for Chrysler.
In a move equally telling, Cerberus is trying to offload Chrysler and is talking to various parties about multiple options including a full sale or an asset swap, according to people familiar with the matter. In order to make any such deal simpler, it is also in talks with Daimler for the remaining stake.
Chrysler has been hit hardest by slumping U.S. auto sales. Industry-wide October auto sales are expected to hit 18-year lows. Chrysler’s sales are down 25 percent so far this year as tight credit conditions, high oil prices and a weak housing market have whacked vehicle demand.
Cerberus founder Stephen Feinberg, who bought Chrysler in a $7.4 billion deal last year, is eager to cut his exposure to the auto business and to increase his 51-percent stake in GMAC, the finance arm co-owned by GM, sources have said.
The write-down is partly bookkeeping (Daimler took a huge charge for the vanished value) and the carrying value may or may not reflect the stake’s value in a sale.
But if you couple that move with the difficulty in valuating auto assets (already considered distressed) and the poor visibility in the sector today, Daimler’s disclosure points to a fearful observation. It’s one that a few analysts and industry experts have recently cautioned about: Chrysler’s auto operations as a whole may, indeed, be worthless.