Rick Wagoner, Dieter Zetsche want Chrysler impasse resolved soon

[Ming]

Car bosses want Chrysler impasse resolved soon
07 March 2007
The Independent

As private equity bidders circle the US car marque, Sean O'Grady talks to the heads of DaimlerChrysler and General Motors at the Geneva Motor Show

Like a second-hand-car salesman and a wary prospective buyer circling a well-used saloon, kicking tyres, shaking heads and sucking their teeth, neither the chairman of DaimlerChrysler, Dieter Zetsche, nor his counterpart at General Motors, Rick Wagoner, was saying much yesterday at the Geneva Motor Show about the vehicle in question - Chrysler corporation.

Maybe they were both unnerved by two other potential buyers reportedly lurking around the used car lot - Blackstone and Cerberus, private equity concerns which might have a very different vision for Chrysler in the future, by analogy stripping it for parts and scrapping what's left.

Most of the other potential Chrysler purchasers, from Renault to Hyundai, have left the scene. We now know that in December Dr Zetsche and Mr Wagoner had personally begun talks on a possible sale of Chrysler.

For his part, Dr Zetsche declared his "absolute confidence" in their Chrysler turnaround plan and that Chrysler would become profitable on the basis of that plan.

However, he also stuck to his statement of 14 February that "we could not answer that question [what was the best future for Chrysler and DaimlerChrysler] without analysing alternatives to the status quo". One of those alternatives, absorption by GM, was certainly not ruled out by Mr Wagoner.

Speaking to The Independent, the GM chairman indicated that he would like to see the speculation ended sooner rather than later, but wouldn't be much drawn on his company's intentions.

Intriguingly, he referred to GM's acquisition of Daewoo of Korea in the late 1990s, in which GM walked away from an initial deal that was "too rich", bided its time and in due course took over some of Daewoo's assets after bankruptcy. That is by no means a template for what might happen in a GM-Chrysler deal, but it suggests that GM may have a few game plans in mind.

Mr Wagoner also made clear his frustration that his company, unlike its foreign competitors, has to deal with vast social costs and has had to spend some $70bn (£36bn) "in cash" on healthcare and pensions provisions. He wondered aloud about what the opportunity costs to his company have been, from developing advanced new technologies to the "$50" upgrade to a model's interior that could make all the difference in the showroom.

He has no regrets about the bigger, less fuel-efficient cars GM came to depend on in America: on the contrary, he exudes pride that his company has "done such a terrific job" on large pick-ups and SUVs, where GM enjoys 40 to 70 per cent US market share, but wishes for that same "superior execution" in other sectors of the market such as conventional family saloons, where Honda and Toyota now lead the traditional US makes.

Full Article: http://news.independent.co.uk/busine...cle2334941.ece

[Ultra Magnus]

If GM is going to buy Chyrsler they either need to go ahead and do it or let it go. I feel this will become too much of a distraction from getting quality products to market faster. GM dont waste time with this when it has appeared that your own products will help you in the marketplace. We have seen a few of the vehicles scheduled for release late this year or early next and have been impressed. Continue that trend and do you really need Chrsler?

[IROCNROL1]

Originally Posted by Ultra Magnus

If GM is going to buy Chyrsler they either need to go ahead and do it or let it go. I feel this will become too much of a distraction from getting quality products to market faster. GM dont waste time with this when it has appeared that your own products will help you in the marketplace. We have seen a few of the vehicles scheduled for release late this year or early next and have been impressed. Continue that trend and do you really need Chrsler?

Maybe not. Patience is a virtue (so I hear).Going by the Daewoo experience, it might be a lot cheaper to let Chrysler go under and then only pick up the pieces they want at a bargain price.

[GM-10]

Originally Posted by Ultra Magnus

If GM is going to buy Chyrsler they either need to go ahead and do it or let it go.

You're right, they should rush their decision. That is usually the best course of action.

Look, Rick has made some pretty smart moves over the last couple of years...from the buyouts to the new pricing strategy. He'll make a smart decision whichever way they decide to go.

[Kappa113]

One point that I haven't read about would be the tax benefits GM would get by buying Chrysler. They could offset profit in the next few years with the losses that Chrysler had incurred allowing GM to make tax free money. While this isn't the only reason to do it, it certianly would be nice.

[awalbert88]

I think in some ways, GM almost has to be the one to buyout Chrysler. Private equity firms would demolish the company, which would send far too many people to the unemployment offices. The US economy wouldn't be totally devastated, but it would definitely take a hit.

Then again, GM would be taking on a pretty massive burden. A year ago, I think most of us would have questioned their ability to manage the turnaround and acquisition of such a large company, but now I believe they can handle it. The only question left is what price has to be paid to go forward.

[killerrd2]

Originally Posted by Kappa113

One point that I haven't read about would be the tax benefits GM would get by buying Chrysler. They could offset profit in the next few years with the losses that Chrysler had incurred allowing GM to make tax free money. While this isn't the only reason to do it, it certianly would be nice.

Also, biding their time for Chrysler and acquiring them "on the cheap" could help raise profits.

Any lessening of the overall impact of the retiree packages/spending/costs is a plus!

[mkaresh]

The Chrysler sale is a mess, very depressing how it's being handled.

http://www.truedelta.com/blog/?p=59

It may well be smarter for GM to let one of the private equity firms buy Chrysler and do the hard work of stripping it down, and then buying the best pieces that come out the other end.

I'm sick of heariing about the legacy costs. GM should have banked money for these at the time it acrued them. Instead, short-sighted management said, "I'll be retired with a huge bonus and pension before we have to really pay for these." And so past management agreed to future payments to avoid raising current wages and/or giving workers a larger voice in the company.

Also, if the legacy costs kept GM from upgrading interiors, then how are we seeing upgraded interiors now, when these costs are at record levels? Fact of the matter is that the GM system couldn't deal with intangibles like interior materials quality. There was no way to prove that $50 spent here would result in larger profits, so GM refused to spend the money. It had nothing to do with Legacy costs. I saw this with my own eyes back in the 1990s, while performing research inside GM for my Ph.D. One brand manager complained to me that if he could spend $300 more on the interior he could sell the car for $3,000 more. While I doubt the ratio would be this large, he was on the right track, but he couldn't get the money because he couldn't prove it would be a good investment.

If cutting $50 from the interior means you have to charge hundreds less to move the product, that's not helping pay legacy costs.

A good product decision is a good product decision, and a bad one is a bad one, no matter what the fixed legacy costs are. They're fixed, they have no business being in the equation.

Need more proof this is BS? Go back to the last couple times GM earned a lot of money. Did it invest these profits to create better products? Or did it squander the money on acquisitions, bonuses, and vanity projects with no market? We're seeing the best products ever out of GM right now, when it has the least amount of money.

[Chaz_23]

Um, Rick...I think most people would be happy to pay $50 more for a car if it had a first rate interior, or a six-speed, or competitive power. GM sells a lot of cars in the US, how about keeping some plants open over here?

[01cavalier]

If GM wants it they would need to go for it. Too many other companies want to buy it and pick it apart, though that might not be a bad thing.

[gardnet1]

Originally Posted by awalbert88

I think in some ways, GM almost has to be the one to buyout Chrysler. Private equity firms would demolish the company, which would send far too many people to the unemployment offices. The US economy wouldn't be totally devastated, but it would definitely take a hit.

Then again, GM would be taking on a pretty massive burden. A year ago, I think most of us would have questioned their ability to manage the turnaround and acquisition of such a large company, but now I believe they can handle it. The only question left is what price has to be paid to go forward.

They (private equity firm - maybe blackstone) have been running TRW for about 3 years now.

[gardnet1]

It would be nice if GM could buy Jeep, vans and Hemi (just to keep it from others) and discard the rest, including dealer network. pipe dream.

[jomo]

The only really useful things that Chrysler has that GM DOESN'T have right now is:

1. Minivans

2. The proposed semi-automated manual DSG-type gearbox that the Germans refused to let them put into production.

3. The independently variable valve timing tech that went into Viper's V-10 engine (with the twin-profiled cam-shaft).

Beyond these three key technologies which could help GM, the rest of Chrysler is just ridiculous brand overlap. GM has Hummer. How does buying Jeep help them? GM has Buick, how does getting near-lux Chrysler help them? GM already has Chevrolet and Pontiac. How does getting Dodge help them? The only thing that could come out of that ridiculous overlap is to rebadge/re-grill Dodge Chargers and Chrysler 300s as Buicks and Pontiacs to achieve a turnover of their product lines a couple years quicker. GM's small-block is the equal to or better than the Hemi. All the Hemi's got going for it is name recognition.

There's no need for Rick and Bob to buy Chrysler to get any of this. All of it can be developed in-house with far less long-term pain.

[nadepalma]

Just to add to the discussion, check this out:

http://www.thanhniennews.com/worlds/...9&newsid=25831

DaimlerChrysler AG will not auction off loss-making U.S. division Chrysler and could decide to keep the business at the end of a strategic review, Chief Executive Dieter Zetsche told a German paper.
The possible divestment of Chrysler "will not take the form of an auction process", Zetsche was quoted as telling German paper Die Welt at the Geneva car show in a story published on Wednesday.

Two sources familiar with the situation told Reuters last month that information on Chrysler would be offered selectively to potential buyers so that DaimlerChrysler avoids an outright auction in favor of a more flexible sale process.

This left open the prospect that no bid might be strong enough to complete a deal, both sources said.

DaimlerChrysler announced last month it was examining all its options for Chrysler, whose reliance on light trucks and sport utility vehicles pushed it to a loss last year amid high fuel prices.

"All options include the option of (maintaining) the status quo," Zetsche was quoted as saying in Die Welt.

A company spokesman confirmed the comments

More fuel for the fire? Sure, but it also has me thinking that perhaps we we initially heard about an industrial tie-up between GM and Chrysler might have more plausibility than an outright sale.

If you think back to one original idea floated over a year ago, there was the possibility of spinning off the company and inviting someone to take a stake. Could DCX and GM split Chrysler down the center at 50-50% apiece and look to run it together? DCX would make back some of it's money on the deal through improved balance sheets and then agree to give GM the option of taking over the other 50% once they recoup some of the losses. GM kinda does this with GMDAT -- they owned under 50% of the stock (at first) then upped it to over 50% (once they bought a few percentage points from Suzuki) --- but all the old stakeholders, investment banks, etc are still owners in the company. The idea being that they'd keep a stake to recoup the money they shelled out for GMDAT and then eventually sell their stakes at some point (presumedly giving GM first right of sale before looking to another buyer).

This is certainly an idea --- especially since it would shield DCX from at least 50% of their losses at Chrysler, improve their balance sheets and allow GM to take a piece and get synergies without taking over the company completely.

Of course this is one idea --- but out of all the speculation out there --- it's worth thinking about at the very least.

Nevertheless, I could be wrong --- just more food for thought!

[zete]

Originally Posted by Chaz_23

Um, Rick...I think most people would be happy to pay $50 more for a car if it had a first rate interior, or a six-speed, or competitive power. GM sells a lot of cars in the US, how about keeping some plants open over here?

It's the initial outlay that has him worried. You have to do all the initial work -- that costs money -- before you can recoup any of those costs. And GM isn't swimming in cash so they had to make tough decisions. Sure, they put themselves into this mess but it wasn't Lutz and Wagoner but the prior crews who let GM slide to the point that they were stuck when it came to pumping money into new technologies, interiors, etc.

A lot of what GM has done in the past few years makes ample sense. They focused on a brand at a time or a car at a time. Moving it closer to world class. We're starting to see that slow, and painful, process bear fruit with cars like the Lambdas, the new Malibu, the 2008 CTS, the G8, the 900s, the Camaro, etc. They still have a ways to go but at least some cars won't be playing catchup anymore and that's something that GM has not been able to say for years.