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Daimler bails out on Chrysler stake and forgives debt

German automaker Daimler said Monday it would give up its 19.9 percent stake in its former US unit Chrysler and forgiving outstanding loans from the struggling Detroit firm.

Published: 28 April 2009 09:29 CEST

Daimler bails out on Chrysler stake and forgives debt

Photo: DPA

A Daimler AG statement issued in Stuttgart said a deal signed with Chrysler LLC and US pension authorities marks a definitive separation of the German and US firms following a 2007 spin-off to the private equity firm Cerberus.

“Under this agreement, Daimler’s remaining 19.9 percent shareholding in Chrysler will be redeemed and Daimler will forgive repayment of the loans extended to Chrysler, which were already written off in the 2008 financial statements,” the statement said.

Daimler also agreed to pay €600 million in three annual instalments into Chrysler’s pension plans.

In exchange, Chrysler and Cerberus agreed to “waive any claims” against the German group “including the accusations made against Daimler in 2008 that Daimler allegedly improperly managed certain issues in the period between the signing of the agreement and the conclusion of the transaction.”

Daimler bought Chrysler for $36 billion in one of the largest transatlantic mergers of all time, but the deal soured and failed to last a decade.

The new deal with Daimler comes as Chrysler is scrambling to get additional concessions to keep US government emergency aid flowing.

President Barack Obama’s task force has given the Detroit firm until the end of the week to come up with a viable plan to continue providing aid or face bankruptcy court.

Chrysler is seeking to seal an alliance with Fiat to provide new technology and small cars for the US market, which would give the Italian firm a stake in Chrysler without a cash investment.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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