Chrysler-GM Match Denied

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Speculation about the future of the Chrysler Group has become the center of the buzz around the automobile industry this week.

In Auburn Hills, officials from Chrysler declined to comment on widespread reports the company had retained the investment banking firm of JP Morgan Inc. to explore the possible sale or spin-off of DaimlerChrysler’s American wing.

Meanwhile, officials from General Motors Corp. declined to comment on reports in a German business magazine that GM might be interested in acquiring a stake in the Chrysler Group.

“We don’t comment on speculation,” said GM spokesman Tony Cervone.

The two companies, however, could wind up expanding their collaboration on a project-by-project basis, suggested Ron Harbour of Harbour Consulting in Troy, Mich. “That’s the way companies in Europe have done it for years,” Harbour added.

GM vice chairman Bob Lutz, at a GM press event in San Diego , agreed that discussions with all car companies are a part of GM’s ongoing business. A GM spokesman also dismissed the idea of a GM stake in Chrysler, however.

Later reports during the weekend from the Wall Street Journal insisted that DaimlerChrysler was preparing for the sale of the Chrysler Group, perhaps to Hyundai or to GM, and estimated its market worth at $5 billion.

DaimlerChrysler officials declined to comment on reports the Chrysler Group might be interested in using a GM-made vehicle to replace the Durango.

Tom LaSorda, Chrysler’s chief executive officer, stressed the need for the company to work on more joint projects. The cost of capital is so great more companies are willing discuss such ventures, Harbour said.

The obstacles to a private equity deal for Chrysler, on the other, are substantial. DaimlerChrysler AG is on the hook for as much as $55 billion in Chrysler debt, according to one estimate by UBS. In addition, any private equity deal that would either have an impact on the pensions of its workers or give bonuses to key executives will be immediately challenged by the United Auto Workers.

The UAW has already fought ferocious battles over executive compensation for managers at bankrupt suppliers such as Delphi and Dana. Since any buyout deal would be contingent on some kind of concessions from the union, retention, or other kinds of bonuses, even deferred compensation or stock options if the spinoff is ultimately successful, would be out of the question from the start.

Chrysler is already locked in a titanic battle with the union over healthcare and the UAW’s refusal to give Chrysler the same kind of relief it gave GM and the Ford Motor Co. has cost the company more than $340 million, according to LaSorda.

Potential bidders for the Chrysler unit could include Renault/Nissan, which declined comment, or even an unknown Chinese or Indian company eager to make a move on the world’s global economic stage, analysts suggest.

The barriers to unscrambling the German-American automaker, however, are huge. The two companies now share research on advanced engine development and design and separating Daimler from Chrysler could leave both companies at a serious disadvantage in the increasingly critical effort to improve fuel economy.

In fact, even as DC CEO Dieter Zetsche was talking about dividing the company in two, he was also talking up the need for greater integration and cooperation by the company’s German and American units, which have generally pursued their own agendas since the 1998 merger that created the company.

Zetsche also acknowledges that Mercedes-Benz could lose the economies of scale that come from the partnership with Chrysler in its unfolding duel with Toyota’s Lexus luxury brand.

Toyota’s huge production base does give it an advantage, Zetsche conceded during a conference call with analysts that followed the annual press conference, though he insisted it wasn’t decisive.

However, the real competition in the luxury market is expected to shift to big Asian cities in the next few years. Mercedes-Benz could struggle to match the efficiency of the Toyota/Lexus production system that builds luxury vehicles with impeccable quality and the very latest features on the same assembly lines as its less-expensive vehicles, rather than in dedicated plants still required by German carmakers, Harbour said.

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