Daimler, Cerberus spar over Chrysler decline

Chrysler burned through US$3 billion in the third quarter, leaving it with just US$6.1 billion in cash as sales worsened.

Until now, Cerberus executives had said that the Chrysler investment performed according to their plans until the most recent industry-wide downturn in U.S. auto sales.

It was not clear to what extent Cerberus' accusation that Chrysler was a damaged asset when it acquired the automaker would affect the U.S. government's attitude toward a possible bailout now.

In a statement, Cerberus said Daimler had made "extraordinary changes" to its underwriting standards for vehicle leases and financing between February 2007 and when the deal to sell Chrysler closed in August.

The result of those changes would have been a boost to Chrysler, Jeep and Dodge vehicle sales but at the cost of shifting risk to the balance sheet of Chrysler and Chrysler Finiancial, its financing arm.

Chrysler sold about 1.26 million vehicles between February and August 2007. In 2008, under Cerberus, sales plunged 26 percent over the same seven-month period.

Cerberus also said Daimler had "intentionally and materially breached its obligations" under the Chrysler deal in other ways it did not specify. It signaled it could sue to press its claims.

"We are considering our strategic options and will have further comment after assessing the effects of Daimler's recent actions," the private equity firm said.

Daimler said the claims by Cerberus went beyond contractually agreed commitments. A spokesman for the German automaker said talks over a sale of its remaining stake in Chrysler will still go forward.

"In our view the negotiations with Cerberus have neither failed nor ended," he said, but made clear Daimler was not prepared to give away its remaining Chrysler stake.

"We had not expected that Cerberus would expect to get the stake for free," he said.

The dispute raises questions about the due diligence review of Chrysler before Cerberus bought its controlling stake in the struggling automaker. Cerberus has also been saddled with losses due to its 2006 acquisition of a 51 percent stake in auto and mortgage finance company GMAC.

Earlier on Wednesday, in another sign of how the global sales slump is reshaping the auto industry, Toyota Motor Corp had its credit ratings cut for the first time in a decade, hitting its shares and raising borrowing costs.

Fitch Ratings downgraded Toyota's long-term foreign and local debt ratings on Wednesday to AA from AAA, with a negative outlook, saying the company needed to review its global investments, product mix and speed of expansion to address the challenges it faces.

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