DailmerChrysler: In The Firm Embrace of Magna International

DaimlerChrysler (DCX) may be increasingly in the firm embrace of Frank Stronach’s Magna International (MGA). The formerly powerful autoworkers union has heard emphatically that the old North American car model is broken, and Frank Stronach has some new ideas. The message was not an accident; there are reasons why they chose to make such a large point of it.

Disgruntled car buyers and exasperated Chrysler dealers will tell you the old ways no longer work. The question is becoming, will Stronach attempt to fix just Chrysler's problems or will he also reach into the Daimler side of the business and fix/change a few other problems as well?

Given Frank Stronach’s immigrant success story roots from Europe (Austria to be specific) coupled with existing Magna Manufacturing operations in Europe, my money is on a more comprehensive global approach. This means some of the North American operations will receive permanent closure notices.

Most observers view automobiles as a product-offering problem. There is some truth to this, but the real fundamentals point to infrastructure and jurisdiction issues. DaimlerChrysler, just like many American based manufactures, are facing an increasing unfounded health care and pension cost crisis. You cannot undo the past, but it would be insanity to continue the present.

The United States does not have a satisfactory public health care solution. Costs are wildly out of control. Social Security is under funded and waiting to sink just like the Titanic after it hit he iceberg.

Solution: Surviving manufacturing will be increasingly re-allocated to Canada, which is close to U.S. markets and has a functioning public health care system. Canadian manufacturing entities do not have the same health care and pension funding issues that their U.S. counterparts have. In Europe, with an enlarged E.U. and cheap but good labor in former East Bloc countries, watch for newer plants drawing production away from high cost legacy plants.

DCX and MGA 1-yr chart