What will happen to Jeep if Daimler sells Chrysler?

Ranger1 · **Joined:** Mon Oct 17, 2005 7:40 pm **Posts:** 1137

I watched an Autoline Detroit show on Speedchanel recently, where the host claimed that the sale of Chrysler was kickstarted when Dieter found that the unions were not going to give Chrysler the same concessions they had (reportedly) given to GM or Ford. The host's words were "Dieter hit the roof, or so the reports go."

One of the leaders of the Canadian Auto Union was there, and commented on this statement that he believed in collective bargaining. Interesting show, to say the least. The leader of the CAW, when asked if he would invest union pension funds in DC, stated, "Why would we do that, with 19 billion in liability?

I think it was more of a calculated business plan myself, when viewed from the perspective that Chrysler has $19 billion or so in unfunded pension plan liability.

My question is why is there so much unfunded pension fund liability and how is it allowed to go unfunded?

offroadsubaru · **Posted:** Sun May 06, 2007 12:58 pm

Here is one hypothesis:

http://www.autoblog.com/2007/03/01/daim ... roup-sold/

"The German business daily Handelsblatt reported today that DaimlerChrysler may keep the Jeep brand if it eventually sells the Chrysler Group. The reason is that Jeeps fit well the Mercedes-Benz brand and offers unique product that Daimler couldn't offer on its own. If true, that would mean interested parties would be bidding on the Chrysler and Dodge brands alone. Of course, a few Jeep vehicles like the Compass share their platforms with other Chrysler Group models like the Dodge Caliber, so those links would likely still remain for some time after a potential sale. Considering that the only two companies who appear to have expressed any interest in purchasing the Chrysler Group are General Motors and Magna, taking Jeep off the table would likely make the deal even less attractive than many analysts claim it to be. Jeep sold about 595,000 units in 2006 and sales were up 14% in January and down 5% in February."

Ranger1 · **Joined:** Mon Oct 17, 2005 7:40 pm **Posts:** 1137

It is difficult to see how selling Chrysler would help anyone but Daimler. The union leader of CAW, when asked about his opinion of private equity firms buying Chrysler, had something along these lines to say:

I don't see how it could work for anyone except a few individuals at the top. If you look at what typically happens when private equity buys a business, it involves a few individuals at the pe firm, using mostly other peoples money, and a very select few upper management of the purchased business getting very wealthy, at the expense of the business and workers. Many workers and suppliers will suffer so that a few individuals can become extremely wealthy. They don't know anything about running a business. They know how to break up companies and sell it off for a profit.

What the CAW leader had to say reminds me of what corporate raiders of the 80's did to companies. Buy them, break them up, sell them off for what you can profit from and shut down the rest.

If the Jeep brand ended up with Daimler, I have a bit of difficulty understanding how it would fare except as a very low end offering, not in competition with any MB product, or completely changing into a MB style product with a Jeep nameplate.

BiodieselJeep.com · **Posted:** Sun May 06, 2007 3:47 pm

I seriously doubt anyone would buy Chrystler & Dodge WITHOUT Jeep at this point. Even if Jeep wasn't the money-maker of the three (which it is), how would you build the cross-platofrm stuff like the Nitro/KK in a profiable way if you aren't joint companies? These companies share engineering, production and suppliers. It would be a painful, costly seperation of conjoined triplets. You'd have to factor in some serious extra production cost for a Jeep-alone sale.

HOWEVER, the Jeep BRAND is worth something...even if all the production side is a mess after a break-up. It might be a few nasty years of scrambling and re-designed products...but it could be better for the new vehicles in the end. Or not, depending on who buys the brand. Who would buy a big mess at high cost just for the brand name? I'd guess something like a Land Rover (if they had money to burn), or maybe a cash-heavy Japaneese automaker, or a renegade group of investment guys (perhaps the Koreans). Not a sound financial move, but a great ego move, and there are guys who do that (look at Harley Davidson).

Anyway, doubt it is going to happen. Expect this to be a negotation move for contracts. Also expect the wheat to start being seperated from the chaff and shinking of the Dodge/Chrystler line-up...and the bloated Jeep line-up. The only thing keeping the Compass alive is foriegn sales, rumor is that the Commander is not longed for this world...

RFCRD · **Posted:** Sun May 06, 2007 4:45 pm

BiodieselJeep.com wrote:

I seriously doubt anyone would buy Chrystler & Dodge WITHOUT Jeep at this point.

That's right, the company is about worthless without Jeep. Most of the articles I've read discuss the Jeep brand being over 1/2 the value of the company. If it's true that they have a $19 billion unfunded pension liability, then this company is almost worthless on paper. Personally believe it will eventually come out in the valuation models before a sale would take place, Daimler milked this business dry and now they are stuck with it.

Ranger1 · **Joined:** Mon Oct 17, 2005 7:40 pm **Posts:** 1137

I looked up DCX's market cap - as of Friday, it was approximately 85 billion. Since I can't tell the relative value of Daimler versus Chrysler, I split the market cap in half to 42.5 billion for Chrysler (don't laugh if you're a cpa) and in that context, 19 out of 42.5 billion is a pretty serious debt load, at 44.7% of market valuation, if one assumes Chrysler is worth half of DCX. Of course, no one is offering anything near 42 billion for Chrysler.

I did hear Iaccoca say on a recent interview that if he had the money, he'd buy Chrysler, but he didn't have it.

ATXKJ · **Posted:** Sun May 06, 2007 7:06 pm

One of the analyst's for the local paper had come up with the value of Chrylser - being less than the pension plan liability - their estimate was that it would be bought by investors - who would declare it bankrupt just to kill the union contracts - and then try to sell of the pieces.

I think the Jeep nameplate may be the only thing that survives.

Ranger1 · **Joined:** Mon Oct 17, 2005 7:40 pm **Posts:** 1137

I would not be surprised if bankruptcy is exactly what private equity firms have in mind, to deal specifically with pension and retirement liabilities. I remember when US Airlines did the same thing, in order to get the pension/retirement liability reduced for airline pilots. The pilots sued, but the bankruptcy judge allowed it and their pensions were reduced or so the story was told. Later, US Air offers billions for Delta in a semi-hostile bid takeover. No money to pay promised pensions, money to buy Delta. Not nice. There has to be an alternative solution to this kind of business practice.

Reflex · **Joined:** Mon Jan 29, 2007 8:48 pm **Posts:** 567

BiodieselJeep.com wrote:

The only thing keeping the Compass alive is foriegn sales, rumor is that the Commander is not longed for this world...

I wonder what sales of the Compass actually are. Just the other day I read an article about how Chrysler was the only US automaker that had market share growth last quarter, and it credited the Compass with that growth...

KJbob · **Posted:** Mon May 07, 2007 10:00 am

Jeep sales were reported to be up 29% for the month of April and up 10% year to date. Compass sales for the month were 3,239 units and year to date Jeep has sold 15,077 units. The big success story this year with Jeep is the Wrangler. Wrangler sales are up 75% for the month and 78% year to date.

Liberty, Grand Cherokee, and Commander sales are lower, year to date, than last year.

offroadsubaru · **Posted:** Mon May 07, 2007 10:05 am

More on this issue:

http://www.autoblog.com/2007/05/07/magn ... -chrysler/

"In spite of the non-discrete presence of Wolfgang Bernhard around Chrysler headquarters in Auburn Hills last week, a German paper seems to think that only Magna is really serious about taking over the company. Automobilwoche reports that Cerberus, of which Bernhard is part of the team, and the Blackstone Group apparently may be being brought in by DaimlerChrysler's investment bankers to provide the appearance of more interest than there really is. A go/no-go decision on a sale is likely to be made in the next few weeks.

From an operational standpoint, Magna is the bidder likely to be most interested and capable of succeeding in reviving Chrysler. They have long wanted to be more than just a supplier and they've been doing full vehicle assembly through their MagnaSteyr division, so they have the motivation. Blackstone has had some sucess in running large suppliers like American Axle and TRW so they may also be interested in more than just splitting up Chrysler and selling it off. Cerberus' intentions are less clear although the presence of Bernhard does lend credibility to their desire to rebuild the company. There is always the possibility that Daimler will decide to just hang in there keep the US based group. "

What will happen to Jeep if Daimler sells Chrysler?

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