Hey, DML!
Straight from the NY Times
DETROIT, Oct. 25 - DaimlerChrysler without Chrysler might not be that
farfetched an idea.
Executives at Chrysler's German parent on Wednesday refused to rule out the
possibility that the Chrysler Group could be spun off or sold, after
Chrysler announced that it lost $1.5 billion in the last three months.
Though there are no indications that such a spinoff is imminent, the
possibility of such a sale is the latest sign of upheaval in the American
auto industry, as the three Detroit companies struggle to return to
profitability.
Such a move would potentially end the eight-year merger that shook the
automobile industry when it was announced in 1998. That merger triggered
other transnational arrangements, like the alliance between Renault and
Nissan, and the now-defunct deal between General Motors and Fiat.
But DaimlerChrysler, meant to be a merger of equals between Germany's
Daimler-Benz and Chrysler of the United States, has instead proved to be an
automotive seesaw.
Rarely in the last eight years have both Chrysler and Mercedes, Daimler's
German luxury brand, been on the upswing at the same time.
Last year, in fact, it was Chrysler that propped up Mercedes as it stumbled
amid quality problems that threatened to tarnish the image of its expensive
luxury cars.
Now it is Chrysler that has acknowledged it needs a restructuring, its
second in six years. Its Detroit business model, based on mass-market sales
of sport utility vehicles and pickup trucks, has not shifted quickly enough
to keep it competitive as gas prices have risen.
"The goal is to create a strategy that assures the sustained profitability
at Chrysler and DaimlerChrysler," Bodo Übber, DaimlerChrysler's chief
financial officer, said during a conference call with industry analysts and
journalists. He added: "We don't exclude anything here."
Mr. Übber continued, "We at first are doing the analysis, then we are
talking about it, and we draw our conclusions."
His careful language prompted immediate questions about whether Chrysler was
up for sale. To one, Mr. Übber replied, "I can only repeat myself - first
analysis, second measures, third is conclusion. That is what my statement
is."
He added: "Any speculation is what you are doing. I don't do any
speculation."
Officials at Chrysler maintained later Wednesday that the company was not in
danger of being abandoned by the German parent that had wooed it so
forcefully almost a decade ago. Indeed, DaimlerChrysler's chief executive,
Dieter Zetsche, who ran Chrysler until a year ago, has emphasized his intent
to fix Chrysler, not dump it.
But a potential suitor exists: Carlos Ghosn, the chief executive of Renault
and Nissan who tried unsuccessfully this summer to explore a possible
alliance with G.M., has made no secret of his desire to add a North American
partner to his union.
Beyond Mr. Ghosn, the most likely candidate might be a company from China,
whose automakers are eager to expand into North America, said Ron Pinelli,
an industry analyst with Autodata of Woodcliff Lake, N.J.
But "all the Chinese would want would be the dealers and the brand names -
they don't want the factories or the employees," he said.
Chrysler's situation now is in sharp contrast to 1998, when it was an auto
industry darling, known for taking risks with styling and earning some of
the biggest profits in the industry on vehicles like the Jeep Grand Cherokee
and the Dodge Ram pickup.
The merger was the brainchild of a former Daimler-Benz chief executive,
Jürgen Schrempp, who envisioned a global company that could share
purchasing, manufacturing and development while keeping separate identities
for both Chrysler and Mercedes.
The deal, however, has never paid off on the scale that Mr. Zetsche
imagined, and indeed, Chrysler has bounced back and forth between its
traditional identity as the third-biggest American player and its goal of
joining Mercedes among a small group of foreign brands with clear identities
and buyer loyalty.
Indeed, Chrysler won buyers two years ago with its 300C sedan, with a
transmission and other technology from Mercedes. The 300C seemed like a
promise of a new, more nimble company.
But Chrysler continued to rely heavily on S.U.V.s and pickups for nearly
three-quarters of its sales, the highest percentage in the industry, leaving
it unprotected earlier this year when $3 a gallon gas prices stalled those
sales and sent buyers to more fuel-efficient vehicles.
As a result, Chrysler's revenue plummeted by 23 percent along with its sales
in the third quarter. The company, which had insisted its fortunes would
improve during the second half of the year, instead surprised analysts a few
weeks ago by disclosing it expected to lose $1.5 billion.
Earlier this week, Chrysler acknowledged that it has kept as many as 100,000
vehicles in its order bank, a separate supply of cars that have not been
assigned to dealers and are not included in its inventory figures, which are
already high by industry standards.
The company's problems led it to create what it is calling "Project
Refocus," an effort to re-examine every aspect of the way Chrysler does
business, from manufacturing to purchasing and its overhead costs.
The company is striving to cut the equivalent of $1,000 out of the cost of
every vehicle, a difficult task given that Chrysler is introducing eight
models this fall. It is much easier for companies to cut costs before new
models are introduced.
Another difficult task would be setting a value on Chrysler as a separate
company, as well as determining the mechanics of a possible breakup. The
original agreement between Daimler-Benz and Chrysler did not set forth terms
for a split - a reflection of the confidence Mr. Schrempp and Chrysler's
chief executive at the time, Robert J. Eaton, felt about the merger's
long-term success.
But even the faintest possibility of a division is likely to put more
pressure on Chrysler's employees, including its union members. Chrysler
executives were upset earlier this fall when the U.A.W. broke off talks on
health care concessions similar to those granted at General Motors and at
Ford Motor.
At the time, the union's president, Ron Gettelfinger, said an analysis by
the U.A.W.'s financial adviser showed Chrysler was not in dire enough shape
to require the givebacks.
Now, the bad news could spur both sides back to the table - and create even
more turmoil for residents of the Motor City, who have already been battered
by an unrelenting deluge of dire developments this year.
"How are people supposed to work when there's all this craziness going on?"
Mr. Pinelli asked. "It's so unsettling when you don't know what's coming
next."
Not sure whether to jump for joy or panic!
Bob (DAKSY) Smith
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