- The Washington Times - Friday, February 16, 2007

Detroit’s Big Two?

The world’s largest automaker is set to expand further, as General Motors Corp. is negotiating to buy the struggling Chrysler division from its German parent, DaimlerChrysler AG, sources with knowledge of the talks said.

GM and DaimlerChrysler officials have denied the existence of any talks.

“We’re not going to comment on speculations concerning [any] discussions between [DaimlerChrysler] and GM,” GM spokesman Tom Wilkinson said today. “As we’ve said in the past, we’ve frequently discussed areas of mutual interest with other carmakers, and in a lot of cases, these discussions don’t lead anywhere.”

Nevertheless, Detroit and Wall Street were buzzing after the German business publication Manager Magazin reported Wednesday that GM and DaimlerChrysler were negotiating a buyout of Chrysler.

Speculation of a buyout intensified this morning after the U.S. trade publication Automotive News reported that “high level talks” of a buyout between DaimlerChrysler and GM executives are being held.

DaimlerChrysler Chief Executive Dieter Zetsche, when announcing plans Wednesday to cut 13,000 jobs at assembly plants throughout the U.S., said the company wouldn’t rule out the possibility of spinning off the Chrysler Group, which posted a $1.5 billion loss last year.

“We don’t know if any of this is true or not, but the fact that both [companies] are not commenting and the stock market is going crazy indicates that maybe there is something,” said John Wolkonowicz, senior analyst with Global Insight, a Lexington, Mass., economic and financial consulting firm.

DaimlerChrysler’s U.S. shares rose $3.08, or 4.4 percent, to $73.33 at 4:02 p.m. on the New York Stock Exchange. It was the shares’ highest closing price since January 2000. GM shares fell 10 cents to $36.34

Some industry experts say DaimlerChrysler executives in Germany have given up on Chrysler and want to sell the U.S. division.

“So GM could end up getting a good deal here,” Mr. Wolkonowicz said.

Chrysler has bounced between losses and profits since Daimler-Benz AG purchased the U.S. automaker in 1998.

Yet aside from a poor third quarter last year, Chrysler vehicles reported strong sales for much of 2005 and 2006.

“Nobody in Germany was saying [in 2005 and 2006] let’s get rid of Chrysler while we lose all this money on Mercedes-Benz,” said auto analyst Charlie Hughes, former head of North American operations for Land Rover and Mazda. “So now, all of a sudden, this isn’t a good marriage?

“Attitudes have changed rather abruptly [at DaimlerChrysler], which tells me basically those were the underlying attitudes all the time.”

GM also may be pursuing Chrysler simply to keep Chrysler out of the hands of competitors, some analysts say.

“GM is in an aggressive mood, quietly confident that they have a lot of their house in order,” said Jim Sanfilippo, an analyst at Automotive Marketing Consultants in Bloomfield Hills, Mich. “Both of these companies are North American-based; there is a common work force.”

Still, many industry experts say they are skeptical.

Chrysler is cutting jobs and closing its Newark, Del., plant after a $1.5 billion loss last year. GM is reducing employment and shutting factories in North America after sales declines in the U.S.

“GM isn’t that flush with cash, so I don’t know what they would bring to the party to buy [Chrysler] with,” Mr. Hughes said.

Erich Merkle of IRN Inc., a Michigan automotive consulting firm, said GM has too many vehicle brands and plants to consider buying Chrysler.

GM “has got far too many plants that are underutilized,” Mr. Merkle said. “They need to close their own plants.”

Both companies have a “full plate” of issues they need to resolve, said David Healy, a Burnham Securities analyst in Sierra Vista, Ariz., who owns GM shares.

“I see no synergies at the corporate level” between GM and DaimlerChrysler,” he said. “They have matching product lines and are trying to fix capacity and labor issues.”

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