Whoever ends up purchasing the U.S. company from DaimlerChrysler might find themselves a few parts shy of a complete car company.
Chrysler, a small, regional car company, is far from being a turnkey operation and lacks some of the basic components of a successfu automaker. Its new owners would either have to continue to rely on Daimler or find new partners for such vital disciplines as research and development, engineering, even writing car loans. Chrysler's new owner could also find creative ways to team up with other carmakers that make mainstream models in a way that produces real synergies and saves billions. "If I'm one of these private equity players bidding on Chrysler," says David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, MI, "I'm talking to China Inc., I'm talking to GM, or any other automaker."
That's why old men with control of large assets, like billionaire investor Kirk Kerkorian and Magna International chairman Frank Stronach, are in the game to buy Chrysler. Stronach has long-time Europeon automotive connections and union backing whereas Kerkorian knows how to combine Chrysler with Fiat and others to create a global automotive enterprise.
Canadian Auto Workers President Buzz Hargrove is pulling for Canadian parts maker Magna International to win the bidding war in commenting on Kerkorian's $4.5 billion for Chrysler, "He's made billions by coming in, buying low, cutting jobs, and throwing people out of work, then selling." Of course, Hargrove could have said that about the other private equity firms bidding for Chrysler, too.
Outside investors are anxious about the business practices of Stronach, whose company has emerged in recent weeks as a leading candidate to buy the Chrysler Group. In May, four longtime board members (out of 12) will be resigning. The company says the timing is "a coincidence," but one director and sources close to the board indicated that some of the departing directors grew tired of trying to keep Stronach from straying away from the core parts business and making moves that upset shareholders. "The U.S. is further along in terms of reforming corporate governance," says Joseph R. D'Cruz, a business professor at University of Toronto's Rotman School. "We still have a number of companies with corny boards."
When in doubt, get out
Recently, institutional shareholders in DaimlerChrysler AG sold a 14% stake in the company to a German bank, a move that underscores the uncertainty surrounding the automaker as it weighs a possible sale of its Chrysler division. The bank described the acquisition as a temporary move intended to help certain DaimlerChrysler shareholders dispose of their shares quietly, without triggering a broader selloff.
Sources: BusinessWeek, April 23, 2007 and The Wall Street Journal, April 14, 2007