Blog: Dave LeggettChrysler future: endgame in sight

Dave Leggett | 26 March 2007

It’s all gone rather quiet on the Chrysler front, at least publicly. But behind the scenes, I guess a number of potential bidders have got teams in there, going over the books, casting an eye over all operations and trying to weigh up whether it’s worth a punt (or just enjoy a good poke around).

We should have expressions of initial interest with the DCX board by the end of the month and ahead of what might be a lively annual shareholders' meeting in Berlin on April 4.

This week should see the subject in the news. But at this point, it’s still anyone’s guess which way this one is going to fall.

For all the vehicle manufacturer expressions of non-interest, don’t be surprised to learn that maybe some of them are quietly more interested than they appear. Magna has also been mentioned and several private equity groups smell a possible opportunity. And maybe Zetsche has also made a contingency plan to keep Chrysler, or parts of it, anyway.

And in the background is a more vibrant and slowly recovering GM, eyeing a purchase that could consolidate its position as the world’s biggest carmaker (keeping it just ahead of Toyota) for a few more years yet. GM also shares the same problems as Chrysler and its managers may feel it knows best how to fix it.

Perhaps the whole auction thing is simply designed to put added pressure on GM.

Two things in the background, though, are potential flies in the ointment to any deal and may also explain why DCX’s management has shown less commitment to Chrysler of late.

One is legacy costs – pension and retiree benefits, like healthcare, that Chrysler is faced with. There’s a special fund for that, but it’s heavily in deficit and Goldman Sachs estimates that any company that buys Chrysler inherits legacy liabilities of US$16.5bn. It sounds daunting and it could well be that DCX is trying to offload that little lot onto someone else and isn’t all that interested in realising cash for the sale, anyway.

It might not be quite so daunting if a deal can be done with the UAW to get some relief on legacy costs and here lays our second fly in the ointment. While deep in the financial mire Ford and GM have had some success with the UAW on that front, the attitude of the labour union to a profitable DCX has been rather different. And that hasn’t gone down too well with DCX’s management.

A prospective purchaser therefore has a legacy costs mountain to consider and the hassles of negotiating a deal with the UAW.

It might be a challenge that only a private equity group feels confident to tackle using their typically aggressive methods. And that wouldn’t be something that the workers at Chrysler would relish. If sale it has to be, I wouldn’t mind betting that Zetsche would not like to be seen as the villain of the piece.

Will Chrysler be left to stew in the speculation for a while before GM eventually rides to the ‘rescue’, everyone apparently happy?

US: GM still in running for Chrysler - paper


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