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Hit the highway

27 October 2006 By Antony Currie

Daimler boss Dieter Zetsche insists he has no intention of selling Chrysler. That’s understandable. While the $46bn takeover in 1998 was his predecessor Juergen Schrempp’s doing, Dr. Zetsche ran the Detroit carmaker for five years and helped pull it out of its last slump before taking over the top job in Stuttgart. The mustachioed chief even took the starring role in Chrysler’s light-hearted “Ask Dr. Z” ad campaign.

But Chrysler’s woes are dragging down its parent. Dr. Z should drive away from this failed merger. True, Chrysler benefits a bit from incorporating some parts and technology from sister company Mercedes. But that doesn’t provide anywhere near the benefits that would accrue from producing vehicles on a shared manufacturing platform, such as the one Renault/Nissan chief Carlos Ghosn proposed to General Motors. Yet Daimler wouldn’t dare do this as it would risk diluting Mercedes’ superior brand, and its profits.

Radical surgery would be unnecessary if Chrysler didn’t keep lurching from crisis to crisis. The unit is cutting back production, and will lose at least $1 billion this year. Daimler’s shareholders are itching for change. They cheered after the company’s finance chief this past week hinted a sale of the Motor City unit was possible. Daimler later reasserted its commitment to Chrysler, but the stock still jumped almost 5%. Even taking that rally into account, investors ascribe no value to Chrysler.

Actually, it’s worse than that. Chrysler’s woes are dragging down the value of the rest of the group. Daimler’s other vehicle businesses, including its bus and van division, Mercedes cars, and its trucks unit; its financial-services business; a stake in aircraft maker EADS; and some property assets are worth E55 billion after stripping out debt, pension and healthcare costs, according to JPMorgan. That’s E11 billion more than the current market value. It also assumes Chrysler is worth no more than its liabilities.

Dr. Z’s soft spot for Detroit might make for entertaining television. But he needs to ask himself whether his sentimental attachment to the American subsidiary is obscuring his sense for shareholder value.

 

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