Chrysler Suicide Watch 9: Bad Carma?

Frank Williams
by Frank Williams

When DaimlerChrysler unveiled Project X, the media was abuzz. Chrysler’s turnaround strategy included eliminating thousands of jobs, slashing vehicle production by a quarter and mothballing its Newark factory. More ominously, the plan pledged to consider “any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler." To tell the truth, DaimlerChrysler’s “Recovery and Transformation” document should have stated the management’s desire to explore “any option to pump and dump Chrysler.” Those alternatives are gradually coming into focus. First, here’s what’s not going to happen…

DCX isn’t going to spin off the Chrysler Group. Dresdner Kleinwort Wasserstein analyst Arndt Ellinghorst estimates DCX would have to cough up $11b to cover Chrysler’s liabilities before flotation. After deducting health care liabilities, Morgan Stanley’s mavens value Chrysler’s automotive operations at around $9b, and their financial unit at $7.6b. Spending $11b to jettison a company with a net value of $16b doesn’t compute.

Plan A: sell Chrysler to a private equity group. To that end, Chrysler’s German overlords have commissioned J.P. Morgan to prepare a prospectus for an eventual auction. Fresh from cherry picking GM (i.e. buying 51% of their GMAC finance arm), our three-headed pals at Cerberus are in the hunt. Apollo Management, the Carlyle Group and the Blackstone Group are also reportedly interested.

If an investment group ends up owning Chrysler, it’s only a matter of time (a week?) before they break up the MoPar Pentastar and sell the pieces– from existing inventory to entire assembly lines. Chinese carmakers (who couldn’t afford to buy the company) would be lining up for the Mother of All Garage Sales.

Plan B: sell Chrysler to an automaker. According to press reports, Hyundai, Renault/Nissan, VW, FIAT, Mitsubishi and (for all we know) Nikolai Smolensky have all examined the possibility of buying the Chrysler Group and decided there are better– or at least slower– ways to kill themselves. There’s only one automaker brave stupid enough to take on Chrysler’s bloated dealer network, lackluster product portfolio, deeply entrenched union and enormous employee-related liabilities: GM.

Think about it: the above description applies equally to GM and Chrysler. A merger between the two floundering behemoths is about as sensible as two escaped convicts intertwining their leg irons so they can float downriver past their pursuers.

And yet, GM CFO Fritz Henderson is heading a team to contemplate the “synergy” this “merger of dunces” would create. It’s no secret (at least in these parts) that GM doesn’t have the cash to simply sign a check (and seal its doom). That leaves one possibility: an equity deal. And as ridiculous as THAT sounds, the arrangement would give DaimlerMinusChrysler around a 20% stake in GM.

DCX management could save face with stockholders without losing “real” money. Chrysler Group would be “saved” by GM. GM would gain segment-leading minivans and Jeeps. And more dealers than a crack convention. And enough terminally ill product lines to keep automotive historians busy for decades.

None of this bodes well for Chrysler. Or GM. Or Daimler.

Assuming Porsche buys VW, DaimlerWhatever will become Germany’s smallest stand-alone automaker. Analysts at Banca IMI hint that equity investors and financially flush hedge funds are already sniffing around. Talk about irony: fending off a hostile takeover was one of the major justifications for the DaimlerChrysler “merger of equals.” Without Chrysler, Daimler Benz is right back where they were in 1998.

If Daimler found itself on the receiving end of a hostile takeover, the irony could be compounded. Industry analysts see Daimler stripped into pieces, split into separate car, truck, and van businesses. Of course, this is all speculation. But six months ago, who would have thought Chrysler would be on the auction block?

Despite the enormous implications of any change of ownership at Chrysler on the United Auto Workers (UAW), the union remains uncharacteristically quiet on the subject. The obligatory UAW press release on Chrysler’s 13k job cuts payoffs reads like boilerplate: “Today’s action by DaimlerChrysler is devastating news for thousands of workers, their families and their communities.”

When asked about the possibility that GM could “buy” Chrysler, UAW president Ron Gettelfinger responded “I have absolutely no opinion on that at all.” This despite the fact that many of his members see Chrysler’s "alleged" sale as nothing more than a “threat” (i.e. a ploy to gain contract concessions). Gettelfinger, who sits on DCX’ Board of Supervisors, was equally nonplussed about a Chrysler auction. "It may end up that it's not sold. Who knows?"

Fair enough. With all these (and more) potential scenarios, no one can predict what will happen to the once-proud Chrysler Corporation. DCX better be checking their six, though. In their zeal to rid themselves of their American albatross, they may be setting themselves up for a fall. You know what they say about payback.

Frank Williams
Frank Williams

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  • Hondaboy55 Hondaboy55 on Mar 03, 2007

    Sorry for this, but I'd like to address is the use of or reference to "patriot" or Patriots. I forget who it was, Jefferson, Clinton, George Burns, or Homer Simpson, but one of them or someone else said something like this: " The highest level of Patriotism is to question your government in all it does ". For several decades we have asked very few questions of our leaders, I don't even refer to them as leaders, just morons in charge. Patriotism as a concept can apply to the purchase of a car, or some other item you will be paying for for quite a long time. Your being "patriotic" to your pocket, just as you would if you gave a crap about what your gov. does, by asking yourself the one most patriotic question: " Am I doing the best thing I can for, or with, my hard earned money by buying this "XXYY" automobile?" Am I truly being Patriotic to this country, or my neighbors by buying "XXYY" automobile? To simply go out and "buy American with our "American manufacturers out sourcing as much as possible to build their "American" cars is beyond foolish, your Loyalty is not being returned. Today, to buy a Honda, Toyota, Nissan, (and others) you are buying from a Patriotic company in more than one respect. These companies have been patriotic to this country in answering many of the objections americans have raised over the last decades as they have gained acceptance in our market, and marketshare. They have been patriotic to the US and A by employing americans to assemble their cars, and to employ americans to build the parts that go into their cars. And most importantly, they are PATRIOTIC to the consumers who buy their cars by providing the marketplace with OUTSTANDING value, craftsmanship, dependibility, and for the most part above average business ethics both in and out of company. Unfortunatly most people don't know that one Ford may be a Mazda, or that some Mazda cars or trucks are Fords. In some cases I'm sure its also convenience that a ranger is also a b2000. If you question the average person's attention to detail stay up one night and watch Lenno "ask the person on the street", Although not conclusive many can't name 15 states. I would like to see my town, county, and state governments be more patriotic to my pocket, and to our local workers and buy Toyotas, Hondas and Isuzu trucks. They would last longer, and employ more US and A'ers. This comment is for you "jurisb" today, but I have seen these "patriotic" comments many times here, so it applies to all who use the Patriotic Buy American thinking. Respectfully, you guys need to open up your eyes, and think about Patriotism as a broader concept than just "buy american". Later.

  • Balance Balance on Mar 06, 2007

    "Magna chief prepares for Chrysler rescue" - Automotive News (March 5) ... like I said ... give it 6 to 8 months.

  • J I haven't owned a sedan since like 2011 had a ford fusion and impala then I discovered hatchbacks beats an SUV but the amount of stuff I can do with my little hatchbacks leaves sedan owners and even some SUV and truck owners surprised
  • Dougjp It seems like I'm in a minority by rejecting CUV/SUVs and wanting "cars" instead. Its because, comparing apples to apples (same specs), I don't want (a) worse performance, (b) worse handling, (c) worse fuel economy, (d) worse road & wind noise and (e) higher cost. I'm quite willing to PAY for shipping that costs way less than 1% of the difference between the cost of a car and a comparable CUV/SUV, to buy a bulky piece of furniture from a store that doesn't provide free shipping. Which I would seldom buy anyway. The problem is, people don't think logically, and would rather default to herd mentality. Its the same as why people buy "off road vehicles", complete with ugly add on patch body work to "look the part", then they never go off road.
  • FreedMike How about one for a brown diesel wagon?
  • Lou_BC “Can the sedan be saved?" Big V8's gave Dodge products some extra life. Kinda like a pacemaker/defibrillator in a lifetime pack/day smoker.................... People want easy access/egress, good visibility, dad/mom bod room, and a bit of cargo space.
  • Conslaw I rented an Altima for a 2,000 mile drive in 2019. It was a fantastic vehicle for that purpose. It had all the features we could want, was quiet, comfortable, peppy, and delivered 37-40 MPG, including stretches with 80 mph speed limits. I'd like to see any CUV do that.