Daimler-Chrysler: Does Divorce Really Loom? - Barron's

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For Auto Workers, a Bitter Pill From Dr. Z by Jay Palmer

Summary: Daimler-Chrysler (DCX) CEO Dieter Zetsche's recent suggestion of struggling Chrysler unit's split or sale may be in retaliation for the Auto Worker Union's [UAW] refusal to agree to the same wage and health care cuts as Ford (F) and General Motors (GM) workers. Zetsche could use a sale as leverage in upcoming plant closing and wage negotiations with the UAW – who contend that Mercedes' strong earnings, which saw DCX climb 40% over six months to $73, don't necessitate worker concessions. Investors are hoping a Chrysler/Mercedes divorce will help revive both units' fortunes. Bulls say the stock could go to $80 if a buyer were found. But recently quashed rumors of a GM buyout underscore a sale/spin-off's challenges: 1) Chrylser's $1.5 billion loss in 2006, and more on the way. 2) Ongoing UAW wage disputes and worker financial obligations that are crushing profits - pensions and health-care costs already add $1,000 to every car. Daimler probably won't have to sell Chrysler as rival BMW sold Rover, for $15 in 2000, but it will be far below Chrysler's $38b 1998 price tag. Barron's Bottom Line: An $80 potential upside in a DCX split, but its troubles make Chrysler currently "unsaleable".

Related Links: New Direction for DaimlerChrysler? • UAG and Chrysler Team Up To Bring Smart Car To U.S.: Will Americans Buy It? • Say Ach Ya To Germany: A Global Powerhouse

Comments

[Malkiel:]

A sideshow that may have some relevance is that the US is unhappy with Daimler for continuing to do business with Iran in apparent defiance of embargoes. If Daimler divests itself of Chrysler then it may squirm out of fines or a need to close a recent facility it built there.

2007 Feb 18 03:26 PM