http://www.reportonbusiness.com/servlet/story/RTGAM.20081022.wrchrysler23/BNStory/Business/home
Chrysler's future crumbling along with troubled economy
GREG KEENAN AND JACQUIE MCNISH
From Thursday's Globe and Mail
October 22, 2008 at 8:59 PM EDT
Back before the DaimlerChrysler AG automotive marriage made in heaven went on the rocks, Dieter Zetsche envisioned Chrysler selling three million vehicles a year. Daimler and Mr. Zetsche are gone, any hope of hitting that target has vanished and Chrysler LLC itself is about to go, too.
Whether it's a takeover by General Motors Corp. [GM-N], the purchase of an equity stake by Nissan Motor Co. Ltd. [NSANY-Q] or the worst-case scenario of Chapter 11 bankruptcy protection, the days of Chrysler as an auto maker that can stand on its own are quickly coming to an end.
“The globalization of the auto industry hits Chrysler right between the eyes,” said industry analyst Bill Pochiluk, Automotive Compass LLC president.
The potential GM deal, which amounts to a takeover even though it's billed as a merger, would in theory help solve a cash crisis for GM by giving it access to $11.7-billion (U.S.) in cash Chrysler said it had on its books as of June 30.
But the overlap of vehicles between GM and Chrysler would mean plant shutdowns and the loss of tens of thousands of jobs, perhaps as many as two-thirds of Chrysler's 66,000 employees.
“The GM plan is to buy it and effectively close it,” said John Casesa, a veteran auto industry analyst and now managing partner of Casesa Shapiro Group LLC in New York.
Analysts figure GM would retain Chrysler's Jeep brand and its minivan franchise, but gut the rest of Chrysler's operations, including its car-assembly plants and car lineup. It would close the worldwide head office in Auburn Hills, Mich., and the Chrysler Canada Inc. head office in Windsor, Ont.
“You wouldn't expect too many Chrysler assets to remain,” said Sean McAlinden, chief economist and vice-president of research of the Center for Automotive Research in Ann Arbor, Mich. “[GM] doesn't need the transmissions, they don't need the engines, they really don't need their small cars and they may not need the new Ram [pickup].”
Another scenario is Nissan buying 20 per cent of Chrysler. That would mean the No. 3 Detroit auto maker would be scaled back, but with Nissan as a partner, it's likely to be healthier.
For one thing, Nissan and its partner, Renault SA, have demonstrated how a partnership can be successful. Chrysler has already signed manufacturing alliances with Nissan on small cars and big trucks, but could also use Nissan engines and transmissions in other vehicles.
There would be fewer job cuts than there would be with GM.
Chrysler also needs to shed dealers, which would be a major and expensive headache for GM. GM also has too many dealers in the U.S. market, but found out how difficult it is to reduce the size of that group when it killed off its Oldsmobile division in 2000.
“GM had 300 Oldsmobile dealers that were hanging on for dear life and it cost [GM] an arm and a leg,” said one industry source. Chrysler has about 3,000 U.S. dealers.
The keys to any deal lie mainly with Steve Feinberg, the reclusive Wall Street founder of Cerberus Capital Management LP, which owns 80.1 per cent of Chrysler. Cerberus, named after the mythical three-headed dog that guards the gates of Hades, built its name and a large fortune in the past decade by investing and turning around distressed companies in the U.S. housing and automotive-finance sectors and in Canada's lead airline, Air Canada [AC.A-T].
Its $7-billion purchase of Chrysler from Daimler looked like another daring money maker until late last year, when the triple forces of the slowing U.S. economy, rising gas prices and the global credit crunch began forcing North American auto makers on to the critical list.
“They're facing the prospect of Chapter 11,” Mr. Casesa said of what Cerberus is staring at now that the bottom has fallen out of U.S. auto sales in a slump that is expected to last through next year. “To avoid Chapter 11, what can they do? They can either put more capital in or get somebody else to help them out.”
The GM deal could be a trade, where Cerberus deals Chrysler for GM's 49-per-cent stake in GMAC LLC, giving the private equity fund 100 per cent of the automotive and mortgage financing giant.
If Nissan buys 20 per cent, Cerberus is left with a large ownership stake in a company it wants to jettison.
“What's good for Cerberus isn't necessarily good for Chrysler and vice-versa,” Mr. Pochiluk said.
Originally, Cerberus had hoped to modernize Chrysler's cars and trucks, but as economic conditions worsened, it has instead been forced to slash thousands of jobs and millions of dollars of expenses.
By this spring, sources said, the outlook at Chrysler had become so dire that Mr. Feinberg turned his attention to the sale of some or all of the Cerberus stake to avoid a potential bankruptcy proceeding that would be devastating to the fund's reputation.
Chrysler's future crumbling along with troubled economy
GREG KEENAN AND JACQUIE MCNISH
From Thursday's Globe and Mail
October 22, 2008 at 8:59 PM EDT
Back before the DaimlerChrysler AG automotive marriage made in heaven went on the rocks, Dieter Zetsche envisioned Chrysler selling three million vehicles a year. Daimler and Mr. Zetsche are gone, any hope of hitting that target has vanished and Chrysler LLC itself is about to go, too.
Whether it's a takeover by General Motors Corp. [GM-N], the purchase of an equity stake by Nissan Motor Co. Ltd. [NSANY-Q] or the worst-case scenario of Chapter 11 bankruptcy protection, the days of Chrysler as an auto maker that can stand on its own are quickly coming to an end.
“The globalization of the auto industry hits Chrysler right between the eyes,” said industry analyst Bill Pochiluk, Automotive Compass LLC president.
The potential GM deal, which amounts to a takeover even though it's billed as a merger, would in theory help solve a cash crisis for GM by giving it access to $11.7-billion (U.S.) in cash Chrysler said it had on its books as of June 30.
But the overlap of vehicles between GM and Chrysler would mean plant shutdowns and the loss of tens of thousands of jobs, perhaps as many as two-thirds of Chrysler's 66,000 employees.
“The GM plan is to buy it and effectively close it,” said John Casesa, a veteran auto industry analyst and now managing partner of Casesa Shapiro Group LLC in New York.
Analysts figure GM would retain Chrysler's Jeep brand and its minivan franchise, but gut the rest of Chrysler's operations, including its car-assembly plants and car lineup. It would close the worldwide head office in Auburn Hills, Mich., and the Chrysler Canada Inc. head office in Windsor, Ont.
“You wouldn't expect too many Chrysler assets to remain,” said Sean McAlinden, chief economist and vice-president of research of the Center for Automotive Research in Ann Arbor, Mich. “[GM] doesn't need the transmissions, they don't need the engines, they really don't need their small cars and they may not need the new Ram [pickup].”
Another scenario is Nissan buying 20 per cent of Chrysler. That would mean the No. 3 Detroit auto maker would be scaled back, but with Nissan as a partner, it's likely to be healthier.
For one thing, Nissan and its partner, Renault SA, have demonstrated how a partnership can be successful. Chrysler has already signed manufacturing alliances with Nissan on small cars and big trucks, but could also use Nissan engines and transmissions in other vehicles.
There would be fewer job cuts than there would be with GM.
Chrysler also needs to shed dealers, which would be a major and expensive headache for GM. GM also has too many dealers in the U.S. market, but found out how difficult it is to reduce the size of that group when it killed off its Oldsmobile division in 2000.
“GM had 300 Oldsmobile dealers that were hanging on for dear life and it cost [GM] an arm and a leg,” said one industry source. Chrysler has about 3,000 U.S. dealers.
The keys to any deal lie mainly with Steve Feinberg, the reclusive Wall Street founder of Cerberus Capital Management LP, which owns 80.1 per cent of Chrysler. Cerberus, named after the mythical three-headed dog that guards the gates of Hades, built its name and a large fortune in the past decade by investing and turning around distressed companies in the U.S. housing and automotive-finance sectors and in Canada's lead airline, Air Canada [AC.A-T].
Its $7-billion purchase of Chrysler from Daimler looked like another daring money maker until late last year, when the triple forces of the slowing U.S. economy, rising gas prices and the global credit crunch began forcing North American auto makers on to the critical list.
“They're facing the prospect of Chapter 11,” Mr. Casesa said of what Cerberus is staring at now that the bottom has fallen out of U.S. auto sales in a slump that is expected to last through next year. “To avoid Chapter 11, what can they do? They can either put more capital in or get somebody else to help them out.”
The GM deal could be a trade, where Cerberus deals Chrysler for GM's 49-per-cent stake in GMAC LLC, giving the private equity fund 100 per cent of the automotive and mortgage financing giant.
If Nissan buys 20 per cent, Cerberus is left with a large ownership stake in a company it wants to jettison.
“What's good for Cerberus isn't necessarily good for Chrysler and vice-versa,” Mr. Pochiluk said.
Originally, Cerberus had hoped to modernize Chrysler's cars and trucks, but as economic conditions worsened, it has instead been forced to slash thousands of jobs and millions of dollars of expenses.
By this spring, sources said, the outlook at Chrysler had become so dire that Mr. Feinberg turned his attention to the sale of some or all of the Cerberus stake to avoid a potential bankruptcy proceeding that would be devastating to the fund's reputation.
