Commentary by Doron Levin
Chrysler, a seller of cars in the U.S. for 82 years, is again trying to sell itself. This time the company’s owner, DaimlerChrysler AG, doesn’t have much leverage to argue about price.
Dieter Zetsche, DaimlerChrysler’s chief executive officer, would like to have concrete news to report at the April 4 annual meeting in Berlin. An announcement of a deal will ease the pressure from disgruntled German shareholders who question whether he’s got the right stuff to restore the company’s share price. DaimlerChrysler’s stock has never rebounded from its mauling following Daimler-Benz’s $36 billion acquisition of Chrysler in 1999.
Chrysler, eight years on, probably is worth little or nothing, which is what makes it interesting to at least three buyout firms — Blackstone Capital Partners LP, Cerberus Capital Management LP and Centerbridge Capital Partners LLC.
A $15 billion liability for retiree costs, combined with resistance by the United Auto Workers union to accept lower, market-level wages and benefits, negates the value of Chrysler’s Jeep brand and strong products like the Dodge Ram pickup truck and Chrysler minivan.
“In Detroit, some homeowners with negative equity have been known to push their keys through the letterbox and vanish,” said John Lawson, an analyst at Citigroup Inc. in London. “DaimlerChrysler may be looking to seek a similar walk-away solution for its Chrysler property.”
Not yet, anyway. Zetsche says that DaimlerChrysler retains the option to restructure Chrysler and hang on to it. His point is that no one should take him for a patsy and demand a fee for taking Chrysler off his hands. No CEO could eat that much crow and stay on the job.
More Than Nothing
But let’s say a buyout firm is willing to pay a bit more than nothing. Even that amount is predicated on the assumption that the UAW might agree to reduced post-employment benefits, reduce its wage and benefit scales and accept work-rule changes to increase plant productivity.
Buyout firms represent impatient capital, investors that take big risks and hard lines on making money on their investments. Mutual funds, banks and pension funds that owned big positions in U.S. automakers for years were the opposite: patient, some say, to the point of acquiescence.
If the UAW plays along with a private-equity investment in Detroit -- a very big if — Chrysler in three to five years might achieve consistent profitability and, therefore, attain some real value. Blackstone or some other fund then could undertake an initial public offering or sell a rehabilitated Chrysler to Renault SA, Hyundai Motor Co. or another foreign company looking for an expanded U.S. presence.
Easing the Pain
Zetsche might take a minority stake in a spun-off Chrysler to assure the new owners access to key Daimler technology. In the event Chrysler’s finances get fixed, the German automaker benefits, easing the sting of its purchase of Chrysler.
A more remote possibility for Zetsche is to sell Chrysler to Canadian partsmaker Magna International Inc. or General Motors Corp. The reasons why GM shouldn’t buy are many: More distraction for beleaguered GM management, possible antitrust opposition, depletion of finances better used on current car lines, too many brands.
Robert Lutz, GM’s vice chairman and an opponent of the sale to Daimler-Benz when he worked at Chrysler in 1999, is said to be keen. For him, the separation of Chrysler from Daimler would be vindication. For his boss, CEO Richard Wagoner, gaining Chrysler’s brands would add 10 points of U.S. market share, perhaps preventing Toyota Motor Corp. from becoming the No. 1 automaker worldwide.
GM could offer to pay for Chrysler with stock, giving Daimler a stake in GM and opening the possibility of a strategic alliance.
But how does GM justify shouldering an additional $15 billion of liabilities for retirees after endless whining that its own so-called legacy costs are the main reason for its financial troubles? And could Daimler appease its shareholders with yet another U.S. alliance?
The UAW’s possible willingness to renegotiate post- retirement benefits, as well as lower wage and benefits rates for current workers, is the catalyst that makes a GM-Chrysler merger possible. Unfortunately, it’s a stretch to put too much faith in the UAW agreeing to the needed concessions.
Lots of reasonable people think compromise is possible. Yet Cerberus hasn’t found common ground with the UAW about buying bankrupt partsmaker Delphi Corp.
In the end Cerberus may walk away from Delphi, leaving little choice but liquidation. The same could happen to Chrysler unless the parties find a mutually satisfying answer.
Doron Levin is a Bloomberg News columnist. The opinions expressed are his own.