A wild weekend of gossip and guesswork followed in the wake of news that Chrysler is on the block. But the most striking bit of Detroit hearsay was this: Magna International buys Chrysler and hires Wolfgang Bernhard to run it.
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DaimlerChrysler has retained London mergers-and-acquisitions specialist Lawrence Slaughter to solicit and consider proposals for its American unit.
Yet no matter who acquires Chrysler – General Motors, Renault-Nissan, a private equity outfit or Frank Stronach – a sell-off by Daimler means the battered US supply chain must brace for even more turmoil.
In terms of supplier stocks, Wall Street last week reacted little to the news that Dieter Zetsche declared all options on the table regarding Chrysler’s future. The impact on share prices was felt at DaimlerChrysler (up sharply) and GM (down noticeably.) Supplier stocks were scarcely touched.
But make no mistake, shock waves went through the US supplier community at the notion of GM swallowing up Chrysler – the scenario that got the most attention at the weekend.
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By GlobalDataIf GM buys its cross-town rival, closes several plants (including some of GM’s own and many of Chrysler’s), and consolidates model lines the impact on American parts manufacturers could be catastrophic. That’s because the supply base would be consolidated, too.
At first blush, companies that depend heavily on GM contracts would appear to be the winners, and Chrysler suppliers the losers as the newly-combined purchasing operation reduces the number of suppliers.
At American Axle, executives last week weighed the prospect of growing its non-GM business. About 75% of American Axle’s total revenue comes from GM’s sport utility vehicles and large pickup trucks.
Chrysler-heavy suppliers such as Collins & Aikman, ArvinMeritor, TRW Automotive and Tower could suffer.
For some marginal companies, there is a sense of dread. But other larger suppliers took heart at the notion of winning combined business that might otherwise be divided.
Still, the overall result for the sector would almost certainly be negative as production volumes diminish and OEM purchasing authority becomes more centralised.
Already, the outlook for suppliers in 2007 is worsening, what with January new-vehicle sales off so sharply for the Detroit three. Second and third quarter production schedules cannot avoid being affected.
And Chrysler suppliers are already wincing from the company’s announcement last week that it will reduce total production capacity by 400,000 vehicles a year, idle an SUV assembly plant in Delaware and cut a shift at two assembly plants.
The bombshell announcement that Chrysler is for sale could further weaken the biggest parts makers and could see additional pressures push tier two and three suppliers into bankruptcy. Meanwhile, combining the two purchasing operations of GM and Chrysler would lead to uncertain results.
Would Chrysler’s more relationship-oriented style hold sway or would GM’s purchasing machine be dominant? Chrysler does better in supplier satisfaction surveys.
GM and Chrysler are indeed in talks, but hardly anyone believes it is a done deal. The private equity groups that have descended on the supplier sector are sure to weigh in as well. There has been speculation about Renault-Nissan, too.
Renault-Nissan makes the most sense, according to a consensus of analysts. Carlos Ghosn’s Japanese-French combine would find synergy with Chrysler’s product line-up. Ghosn admitted last summer that he desires a North American partner, requiring capacity for Nissan’s growth.
And there has been one other idea floated – that acquisition of Chrysler by Magna as a kind of career coupe de grace for Stronach.
For weeks, rumours have been swirling that ex-Chrysler COO Bernhard would make his reappearance in the industry at Magna. Bernhard recently left Volkswagen in the wake of Bernd Pischetsrieder’s ouster. The scenario chatted up over the weekend in Detroit was that Bernhard would lead a Magna-owned Chrysler.
But Bernhard’s future is far from sewn up at Magna. He is now expected to become the hottest property among the cluster of equity groups that would like to have his name associated with a Chrysler acquisition attempt.
Edmund Chew
