Blog: Dave LeggettChrysler's valuation paradox

Dave Leggett | 19 February 2007

The signs haven’t been good at Chrysler for a while. It’s been losing money and its dealers in the US have been having a spot of trouble shifting the metal. A bout of restructuring wasn’t exactly unexpected. The masters in Stuttgart may be making good money elsewhere, but pressures for action on underperforming Chrysler have been building.


Last week, at the DaimlerChrysler results conference, we got the expected announcement of axed output and jobs at Chrysler.


What was a little surprising though was that DCX Chairman Dieter Zetsche should announce an extensive restructuring plan for its Chrysler division and in the next breath make it clear that he’ll listen to offers. Less than four months ago the company publicly stressed that Chrysler was not for sale. But now, all options are suddenly open and the speculation on what might happen or who might be interested has duly taken off.


A tie-up with GM, an alliance invitation from Carlos Ghosn, ambitious Asian partners in the wings ready to buy, circling private equity firms and a spin-off, full or partial, to mainly US investors, are among the speculations I have heard. We will surely find out soon if there is a plan for Chrysler that has got further than the rest and if Zetsche really has something in mind already.


Analogies are being drawn with BMW and Rover and some commentators are saying that the rationale behind the 1998 merger that created DaimlerChrysler was ultimately flawed. The industrial synergies never materialised as they were supposed to. It’s hard to argue with that.


Mercedes-Benz doesn’t need Chrysler in the same way that BMW did not need Rover, they say. For some at Mercedes-Benz who never liked the tie-up there will be a feeling of vindication. Get rid of the drags, the distractions and let the three-pointed star fly high, they say.


But even Rover had its good bits. BMW kept the Mini (and a relatively modern plant) and Land Rover was eagerly snapped up by Ford. Does Zetsche, quite intimately acquainted with Chrysler remember, want to give up the best bits of Chrysler – like the Jeep brand and the group’s industrial scale in the US (still an asset, if a hard one to sweat) – to another car company?


If the good outweighs the bad and the bad is fixable, then why sell it? If it's broken and too costly to fix, who wants it? Early indications are that there is interest out there.



DCX demerger in prospect?

There was a lovely quote from Dieter Zetsche yesterday when he answered the questions of the investment analysts after the announcement of his financial results for last year....


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