Chrysler for sale? It's a hot topic
Meanwhile, the Chrysler Group reached an agreement Thursday with the Canadian Auto Workers over 2,000 buyouts and retirement packages worth up to $115,000 Canadian ($98,000 U.S.) that observers say will set the table for what will be offered to U.S. hourly workers to trim their ranks by 9,000.
The job cuts -- 13,000, including 2,000 salaried positions -- were the centerpiece of cost-saving actions outlined Wednesday in Chrysler's second restructuring effort of the 21st Century.
But most of the attention -- and impetus for DaimlerChrysler's soaring stock price -- went to Zetsche's refusal to rule out the sale or spin-off of the Chrysler Group, which lost $1.5 billion last year.
"This has been a hotter topic than whatever GM or Ford did last year," said George Magliano, director of automotive research for the Americas at consulting firm Global Insight.
Speculation grows
Zetsche's statements represent a dramatic change of message from DaimlerChrysler, which had up to that point been saying the Auburn Hills-based unit was not for sale.
A top German magazine has reported that General Motors Corp. might buy Chrysler. Other reports say GM and Chrysler are talking about developing models together, including a report in the Wall Street Journal of a jointly developed large SUV like the Chevrolet Suburban.
German business newspaper Handelsblatt reported that JPMorgan has been hired to examine three options for Chrysler: a sale, a possible spin-off or a continued integration of the companies.
Chrysler and GM officials declined comment. "We do not comment on speculation," a GM spokesperson said. Chrysler spokespeople say they don't want to add to even more speculation after weeks of buildup to Wednesday's announcement of the company's plan to return to profitability by 2008.
"All of the rumors that are out -- whether they be in Europe or on Wall Street -- everybody seems to be an expert on everything and who has talked to who or whatever. We're just not going to comment on the rumors, and I will just go back that strategic options are open," Chrysler Chief Executive Officer Tom LaSorda told Paul W. Smith on WJR-AM (760) on Thursday. "We'll look at it."
Ronald Tadross, an analyst with Bank of America Equity Research, estimated in a note that Chrysler Group could be worth $5 billion.
How separation could work
JPMorgan analysts Himanshu Patel and Ranjit Unnithan wrote in a note Thursday that a narrow alliance between Chrysler and GM could make sense if it focused on select products, such as minivans and small cars or technology.
"A sweeping alliance between the two (Renault-Nissan style), however, would seem to benefit Chrysler much more than GM given GM's" size: twice as big as Chrysler in the United States and three times as big worldwide, they wrote. "Without an 'equalizing payment' (to GM), we suspect GM would reject such a sweeping alliance on the argument that the potential synergies would be largely skewed towards Chrysler (as it did with Renault-Nissan alliance proposal)."
One other way it could happen, they said: if the unions gave significant concessions on health care and headcount, because they fear the prospect of Chrysler being purchased by a private investor.
"The lure of such a deal could be a strong incentive (for the union) to agree to a Goodyear-style health care deal for the Big Three carmakers," they wrote.
Last month, GM Chief Executive Officer Rick Wagoner said the Detroit automaker was studying Goodyear's contract with the United Steelworkers of America, which ended a 3-month strike and transferred health care liabilities to an independent trust fund.
Zetsche's comments came just months before the labor contract between the UAW and company expires in September. Official negotiations are to begin this summer.
Harley Shaiken, a professor at the University of California, Berkeley, who specializes in labor issues, called the timing "quite significant."
"Putting it on the table on the eve of the negotiations is an interesting move. ... In some way, they may want that as a signal for the UAW, but it is unclear what that signal is going to mean."
He said a spin-off or sale would be difficult before negotiations are concluded. "Any buyer is going to want to know what the outcome of the negotiations are going to look like before they move," he said.
About the CAW packages
CAW members at Windsor Assembly Plant, Brampton Assembly Plant and Etobicoke Casting Plant eligible for early retirement will be offered packages ranging from $70,000 to $85,000 Canadian, plus a $30,000 car voucher.
People eligible to retire who decline all postretirement benefits -- other than pension -- would receive an additional $40,000 Canadian.
Other workers will be offered buyout packages worth between $50,000 and $100,000 Canadian, depending upon length of service.
"These incentives are an effort on the part of the union and company to protect the jobs of CAW members with young families, and at the same time will help with the transition for retirement-eligible workers," CAW President Buzz Hargrove said in a statement.
Ken McCarter, DaimlerChrysler vice president of labor relations, said in a statement that the package allows the company "to become more productive and thus more competitive" with "socially responsible separation incentives."
"With this agreement, we can support those who choose to leave the company and lower the number of employees on layoff," he said.
The plan unveiled Wednesday also calls for closing an SUV plant in Newark, Del., and eliminating one shift each at a St. Louis minivan plant and at the Warren Truck Plant.
About 5,300 of the 13,000 jobs to be cut will be in Michigan.
"With this recovery and transformation plan, the headcount reductions are tough. I mean, it's tough for the employees," LaSorda said in the radio interview Thursday. "But when we looked at our overall attrition curves, there's a lot of people that we would hope that fall into the retirement category, and we could follow a volunteer approach here. I think that will help somewhat."
The company has not reached an agreement with the UAW on buyout or early-retirement packages. Chrysler has said hourly workers should learn of buyout and retirement packages within a month.
Chrysler spokesman David Elshoff cautioned "not to draw parallels between the two."
"I think the UAW packages will have to be a little bit more generous ... considering the health care differences between Canada and the U.S.," said Bradley Rubin, an automotive analyst with BNP Paribas in New York.
Shaiken said the delay for UAW buyout packages is not surprising, especially considering the UAW contract with Chrysler expires soon.
"There is more at stake here on the eve of the negotiations," Shaiken said.
"Even though you've got packages already in place with Ford and General Motors, I think the UAW wants to be sure that what it negotiates here both meets the needs of Chrysler workers. And Chrysler may be asking for something in relation to what its bargaining strategy is going to be -- it may be raising other issues."
Chrysler Group has failed to win mid-contract health care cost concessions from the UAW that workers at GM and Ford Motor Co. have approved.
Spokespeople for the UAW could not be reached for comment.
Despite the turmoil and uncertainty, LaSorda said the company has to work to control its own fate.
"We are here regardless of what happens," LaSorda said on the radio. "We must deliver this transformation plan and get this company back on solid footing financially."
-- "The king of Israel answered, "Tell him: 'One who puts on his armor should not boast like one who takes it off."