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Chrysler Spin-Off Rumors Restart


Reports circulated throughEurope again last week that DaimlerChrysler was thinking of spinning off the Chrysler Group -- and the rumors helped push the company's stock towards $60 per share.

The speculation again drew the obligatory denials from DaimlerChrysler spokesmen in both Auburn Hills and Stuttgart where executives tried to keep the spotlight on the introduction of the Mercedes-Benz C-Class.

 

Dieter Zetsche, DaimlerChrysler's chief executive officer, has repeatedly said there are no plans to spin off the Chrysler Group.

The rumors, however, seemed to be fueled by the side-line conversations at the C-Class launch and an upcoming meeting of the DaimlerChrysler supervisory board, which is scheduled to hear an update of plans for turning around the fortunes of the ailing Chrysler Group.

In addition, the rumors also reflect the sentiment of a vocal group of German shareholders, including some institutional shareholders, who have been vocal opponents of the 1998 merger that created the German-American automaker. Roughly 80 percent of DaimlerChrysler's outstanding common stock is owned by German citizens and institutions. Dissident German shareholders, in fact, were instrumental in forcing Juergen Schrempp, then DaimlerChrysler chairman, to back out of a deal with Mitsubishi three years ago.

Meanwhile, the Chrysler Group lost $1.5 billion through the first three quarters of 2006, and losses appear to have continued during the fourth quarter as the company cut production to curb an unwanted increase in inventories.

Tom LaSorda, Chrysler Group president, has said he will make the turnaround plan public by the end of February. The bulging inventories and red ink have put a lot of pressure on LaSorda, who was forced to dismiss his top marketing executive last fall after a revolt by franchised dealers.

LaSorda, a manufacturing whiz, is now heading up the company's marketing effort personally and trying to repair relations with dealers while working under a steady stream of stories, indicating he is about to be replaced by Volkswagen's Wolfgang Bernhard, who will be unemployed at the end of the month.

Zetsche, however, went out of his way to embrace LaSorda during a joint appearance at the North American International Auto Show and dismissed suggestions Bernhard was coming back to DaimlerChrysler.

LaSorda also is walking something of a tight rope. On the one hand, he is trying to convince skeptics in the press and investment community that Chrysler’s problems last summer were only a temporary aberration. At the same time, he also has to convince the United Auto Workers the situation is dire enough to require contract concessions similar to those the union gave General Motors and Ford in 2005.

So far, however, the UAW has balked and the dispute over concessions is simmering in the background. The union agreed to take another look at DaimlerChrysler's financial reports but so far the effort has not changed the UAW's overall position.

On Friday, DaimlerChrysler shares surged 1.7 percent on the rumors of the spinoff and a positive introduction of the new C-Class sedan. The company expects the new car to help boost profits, Zetsche said.

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