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Why does Chrysler prefer to be an LLC?

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awlgeelady | Student, Undergraduate | (Level 2) Honors

Posted June 8, 2013 at 8:25 PM via web

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Why does Chrysler prefer to be an LLC?

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kipling2448 | (Level 2) Educator Emeritus

Posted June 30, 2013 at 2:14 AM (Answer #1)

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Chrysler underwent a number of ownership changes over the recent past, including its 1998 merger with German auto manufacturer Daimler-Benz AG, a partnership that failed and resulted in Chrysler being sold to Cerberus Capital Management in 2007, which registered Chrysler as a Limited Liability Company.  

Why Chrysler would emerge from the transaction regarding its ownership as a LLC may be related to its financial history.  The third of the three big American automobile manufacturers (along with General Motors and Ford), Chrysler has had a more turbulent recent history than its two domestic competitors.  Its 2008-2009 financial problems are well-known today, but, unlike General Motors and Ford, Chrysler had been down this road before, specifically in the late 1970s when it was nearing bankruptcy and required U.S. Government assistance to survive.  At the time of the Daimler sale of much of its interest in Chrysler to Cerberus Capital Management, its perilous financial situation was probably well-known to its new majority owners.  By registering as a LLC, a category normally associated with small businesses, its new owners probably wanted to protect themselves from the looming financial crisis they no doubt saw on the horizon.

One of the reasons small businesses often register as LLCs is because of legal protections it provides for the owners should they face backruptcy or, as importantly, a civil suit that threatens the viability of the company.  Registering as a LLC shields the private assets of the owner from being attached in a potential law suit filed by a former customer or anyone else.  In addition, LLCs enjoy certain tax benefits not available to other types of companies.  It is very probable that Cerberus Capital Management's officials, who would have access to all financial data concerning the health of Chrysler, recognized the dangers and acted to protect themselves against personal liability for if or when Chrysler filed for bankruptcy, which it did in 2009.

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