DaimlerChrysler’s decision not to bail out Mitsubishi Motors Corp. could hamper efforts to return its Chrysler division to long-term profitability by driving up product development costs, analysts reportedly said.
Reuters noted that Chrysler officials repeatedly have touted the savings in development and procurement costs thanks to Daimler’s partnership with Mitsubishi, and the US-based unit is involved in several key ventures with the ailing Japanese carmaker.
“Although this decision limits uncertainty about potential future cash contributions from DaimlerChrysler into MMC, it also brings into question a key component of Chrysler’s turnaround strategy to improve its cost structure by sharing platforms and procurement activities with MMC,” Standard & Poor’s analyst Maria Bissinger said in a research note cited by the news agency.
Reuters said the companies’ joint ventures include a development programme for the “world engine,” a new four-cylinder engine for global use, as well as development of small and mid-size cars.
The car programme is also expected to spawn two new models for Chrysler’s Jeep division, according to a research note on Friday by Prudential Equity Group analyst Michael Bruynesteyn cited by the news agency.
DaimlerChrysler chief financial officer Manfred Gentz reportedly said on a conference call on Friday that cooperation between Mitsubishi and Chrysler on new vehicle development and production would continue since it is based on commercial agreements that will remain in place but some analysts consider the joint programmes could derail anyway, given widespread doubts about Mitsubishi’s future.
“The cooperation has been quite extensive and if you imagined it just coming to a sudden halt, then that would certainly be a burden for Chrysler,” S&P auto analyst Scott Sprinzen told Reuters. “We have no indication that that’s going to happen, but certainly the financial condition of Mitsubishi is very uncertain at this point,” he said.
“Given that both Chrysler and MMC have been co-developing new platforms (in the small/intermediate passenger car segment) any withdrawal by MMC could result in higher costs for Chrysler,” analysts at BNP Paribas said in a separate research note cited by Reuters.
Analysts reportedly say it is too soon to gauge the extent of the potential self-inflicted injury on DaimlerChrysler’s American operations. But Michael Robinet, an analyst who tracks the motor industry for CSM Worldwide told Reuters he saw little near-term impact on costs and Chrysler’s product development.
“As far as the C-D platform at Chrysler, they essentially borrowed some designs from Mitsubishi, modified them heavily and have procured them in their own way with their own supply base. So I really honestly don’t see much of an effect for DaimlerChrysler in North America, whether Mitsubishi survives or not,” Robinet said, according to the news agency, which noted that C-D platform refers to the basic underpinnings of upcoming small and mid-size cars, including a replacement for the aging Chrysler Neon due out in late 2005.
Robinet reportedly acknowledged that “lower economies of scale” could hurt Chrysler if its cooperation with Mitsubishi fails to continue, however.
Chrysler spokesman Jason Vines declined to comment to Reuters on the future of joint product development with Mitsubishi. “This is, I would say, the beginning of the story and not necessarily the end of the story,” he said.
Despite potential trouble for Chrysler, several analysts saw DaimlerChrysler’s decision to stop pumping money into Mitsubishi as welcome news, the news agency said.