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February 20, 2007
Divorce and Fanning the Auto Rumor Mill
The issue for DaimlerChrysler now seems to be how it will spin off its ailing U.S. subsidiary, whose billions in losses pose a threat to the company's German core business. Last week DaimlerChrysler announced it was cutting 13,000 jobs in the U.S. Even worse, company management may be heading to divorce court. And speculation about potential partners, or even a buyer, has the auto industry rumor mill abuzz.
The latest long shot: General Motors buys DaimlerChrysler's Chrysler Group.
At first, we took it for what it was: a rumor about which General Motors and DaimlerChrysler had refused to comment. News of the talks of an alliance between GM and DaimlerChrysler began to emerge last week, first reported in Germany's manager magazin. Now high-level talks between executives are taking place about GM buying DaimlerChrysler AG's struggling Chrysler Group in its entirety, according to several media reports and the dubious old "unnamed sources close to the situation." (See, e.g.: My best friend's sister's boyfriend's brother's girlfriend heard from this guy who knows this kid who's going with the girl who saw Ferris pass out at 31 Flavors last night. I guess it's pretty serious.)
Several experts are skeptical. After all, how would this reputed plan do anything positive for either company? Or even the U.S. auto industry?
Chrysler is everything that GM is trying not to be — overly reliant on light trucks and beset with overcapacity and losses in North America, as Forbes notes. A failure to discern American consumers' changing tastes for more fuel-efficient models instead of light trucks led the German-American automaker to announce plans to eliminate 13,000 jobs in the U.S. and Canada, or about 16 percent of its workforce, and shutter a plant in Delaware in a bid to shave costs. The company on Wednesday said it hoped the slimming down of the workforce would return Chrysler to profitability by 2008.
And General Motors is itself going through a painful recovery, and its position as global No. 1 carmaker is under serious threat from Toyota. GM has shown little ability to manage all of its eight brands well, so how could it possibly handle three more — Chrysler, Dodge and Jeep? GM management clearly has enough to worry about right now; why would it want Chrysler's finance business since it sold its own finance arm last year?
"This would be an at least $5 billion plus deal and GM is not that liquid right now," John Casesa, an automotive analyst with Casesa Strategic Advisors, tells CNN.
Other experts have said that while a GM purchase of Chrysler appeared unlikely, they could see other buyers emerging.
The auto rumor mill has already namedropped a string of possible buyers, such as Korea's Hyundai and the two main French groups, Renault-Nissan and Peugeot-Citroën. Carlos Ghosen, the CEO of both French automaker Renault and Japanese automaker Nissan, had expressed interest in finding a North American partner to join the alliance between his two companies. Until it went into its own financial slump. Talks between GM and those two automakers last year were abandoned without any agreement.
Now a Chinese buyer seems more likely to some. Considering how anxious the Chinese are to move into the U.S. market, a merger with Chrysler could give them instant access to a ready-made distribution system of dealers.
So all the industry buzz is already having an impact — based on unfounded rumors alone. The Associated Press reports:
Speculation about potential partners, or even a buyer, jumping in to use Chrysler's expansive parts and dealership network to gain entry to the U.S. market has ranged from a tie-up with Nissan and Renault to talk of a link with Hyundai to a homegrown deal with General Motors. The possibilities have driven DaimlerChrysler shares up by 12 percent since it first said it was mulling all options for the Chrysler Group. On Monday they gained almost four percent more to 56.26 euros (US$73.88) in German trading, their highest level since July 2001.
The Chrysler troubles may soon lead to even more drastic measures. For years, DaimlerChrysler management has said that divorce was not an option for the mega-firm, notes Spiegel Online. Last Wednesday, however, current company boss Dieter Zetsche said that all options were being looked at — and that a sale of the U.S. automaker could not be ruled out.
The prospect of a Daimler-Chrysler divorce alone has sent Daimler's shares to a six-year high and the Dax index close to a record 7,000 points, says Buzzle.com.
The consensus of many industry analysts who dismissed as unfounded reports that GM was beginning to court Chrysler, saying that GM is an unlikely suitor for Chrysler, is that the two automakers are strong candidates to share vehicles and technology.
While the auto troubles are fact, of course, the idea of divorce and merging is all just talk. After all, officials at GM and DaimlerChrysler continue to keep mum on the reports that the two companies' chief executives and chief financial officers have held several serious talks.
Are the rumored talks simply an attempt at a short-term bump in stock? (It worked.) Bigger question: If the talks are true, would this latest rumored plan make any sense for the U.S. auto industry, or even for either of the companies? It seems like executives in Detroit are at the point where they will consider almost anything to find some way to survive.
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6 CommentsHow can anyone remotely familiar with the US auto industry suggest that GM can buy anything?
According to "DAILY WEALTH" newsletter article by
Porter Stansberry...GM is bankrupt. It has not made a profit in the lsat 10 years making cars. Gross profit has declined 46%...from $40 billion in 1996 to $22 billion in 2005. GM can not pay overhead, pay capital improvements to maintain its plants or pay dividends. The result has been an explosion of debt. In 10 years GM total liabilities have risen from $199 billion to $450 billion.
GM cannot earn enough building cars to re-pay that kind of debt...credit rating has been reduced to "junk". As debt comes due, it re-finances at increasingly higher interest rates. In the last three years, interest owed grew by 77% from $9 billion to $16 billion. You can downsize, close factories, lay-off union and white collar, re-negotiate pension and health benefits, BUT YOU CAN'T DOWNSIDE DEBT. GM will pay in the order of $16 to $18 billion in debt service alone this year....they are bankrupt, put there by poor management that allowed poor quality perception to turn to reality and union work rules demands and contract greed that essentially will put the union workforce out of work.
My sense is forced bankruptcy in one to three years by creditors and a re-organization, the breath and pain of which this country has not before witnessed. And the reality is, they deserve it!
February 23, 2007 3:10 PMJOHN YOU ARE A CLEVER GUY SAYING THAT GM DESERVES IT. WHAT IS SO CONCERNING TO MOST PEOPLE LIKE ME IN THE AUTOMOTIVE INDUSTRY IS THAT PEOPLE LIKE YOU CLAIM TO BE STAUNCH AMERICANS. HERE ARE SOME OF THE MOST IGNORANT THINGS PEOPLE LIKE YOU ARE DOING:
1] SELLING OUT THE MIDDLE CLASS IN AMERICA BY NOT SUPPORTING OR EVEN BUYING DOMESTIC AMERICAN VEHICLES.
2] DOING BUSINESS IN OTHER COUNTRIES WHILE CLAIMING TO BE AMERICANS.
3] BUYING UP WALMART PRODUCTS AND DRIVING FOREIGN CARS.
4] OPENING UP SMALL BUSINESS'S WHILE PURPOSELY USING IT AS AVENUE TO GAIN YOUR STATES HEALTH AND MEDICAL BENEFITS THAT ALL US HARD WORKING TAXPAYERS HAVE TO COVER.
5] VOTING FOR REPUBLICAN CANIDATES THAT CONTINUE TO SUPPORT THE BREAKDOWN OF THE MIDDLE CLASS--- I CAN'T WAIT TIL IT HAPPENS TO YOU, YOU POOR MISERABLE HYPOCRITE.
March 2, 2007 3:08 AMI can more clearly understand why the OLD U.S. auto industry is in trouble if it is staffed by persons such as yourself who have a complete lack of even common logic about cause and effect.
The Toyota Camry built in Georgetown KY is 80% domestic parts....built by a company that PAYS taxes, local, state and federal as opposed to a GM that has not paid federal taxes in the past 1o years. How in the bloody hell can supporting enterprises that open a new truck plant in Princeton, IN...new auto plant in West VA, new auto plant in southeast Indiana, just to name a few new openings in the last 5 years, in heavy manufacturer sector be destroying the middle class? Who in the hell do you think works there?
As far as opening plants in foreign countries, get your sorry ass informed, GM has auto plants in India and China, Ford is selling the old Maverik line in China, and next to Walmart, Ford & GM are two of the largest users of China imports in dollars into this country in first and second tier parts in their "domestic" (now understand that they now claim Mexico and Canada as "domestic")...GM expects $1 BILLION in China investment in the next two years.
The most unintelligent comment I've ever read on this Blog, and there have been some wows: is #4...FACT: small business and small business start-ups fuel most of the new employment opportunity and small business is the backbone of American economy....even Slick Bill Clinton and Semi-bright George Bush know that!
As far as #5, do you even know what a hypocrite is? Further, to question anyone's patriotism without any knowledge of that person's life experiences is about as LOW as you can go. How and why would you expect someone to buy inferior products riddled with safety issues because those like you in the industry stand in front of it and wave a flag? When you can't stand on merit, maybe you can shame someone into buying.
In the last seventeen years according to information readly available on the net to new vehicle buyers, GM, Ford and Chrysler have accounted for 67% of the forced recalls of all autos sold in the US.; Toyota and Honda 9%. How is it in the middle class's best interest to be asked to buy
"domestic" with that kind of record of safety? You and those like you think that there are American goods and foreign goods. In this world today, there are just goods. Answer personally, these few questions regarding buying USA:
1. where did your shoes come from,
2. how about your TV set,
3. your camera,
4. the machine tools in the plant you work in,
5. the small appliances in your kitchen,
6. the copper in the wiring in your home
7. the stainless steel in anything you own,
8. who owns the mills that produce the steel you in the US auto industry form...bet it is MITTAL, they are owned by an Indian living in the UK.
9.where are most of the electronics that affect your daily life such as cell phones made?
Now YOU HYPOCRITE, is it different if your bull is not being gored? Why is the American auto industry to be accorded such special treatment...where were you when the shoe industry left MASS; where were you when the industry purchased coil steel sheet from So. American and elsewhere because it was just as good and a lot less expensive. Where was the auto industry when the fabric mills closed in the Carolinas because fabric from India was cheaper for interiors. Where were you when RCA/Thomas Industry left Indianapolis for foreign soil. Where was GM's concern for the middle class when they left the Delphi/Delco mess and found they had to buy foreign at less to help cover poor performance. Why were you not waving the flag when US mined copper was shut out by price because you had beat on the wiring harness suppliers for price to help offset your losses in poor sales and manufacturing...the same can be said for castings, once produced domestically, now coming from Korea and China because they are cheaper and a host of other first and second-tier items.
THIS is why I say THEY DESERVE IT!! They did it to any sector of the domestic supply market to cover their own shortcomings, and now there is nothing else to cover their losses. So let's wave the good old red, white and blue and
condemn anyone who can see through the BS.
I feel I am a good American, I am not an enabler, I know what is good for the ENTIRE US economy, not just one sector that is no longer viable as it is. I'm sorry if you have been harmed by the industry you chose to be a part of.
As for being a hard-working tax payer, I'll wager that I was paying taxes when your Mother was still cleaning crap out of your diaper, and I still am and I hope to be for some years to come. I filed my first federal tax return in 1953....how about you!
March 8, 2007 4:11 PM
