Editore"s Note
Tilting at Windmills

Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

April 6, 2007
By: Kevin Drum

POSER OF THE DAY....Which of these is more pathetic?

  • That Kirk Kerkorian bid $4.5 billion for Chrysler?

  • That DaimlerChrysler's stock went up on the news?

  • That I can't figure out why anyone would even bid that much?

Decisions, decisions.....

Kevin Drum 12:35 AM Permalink | Trackbacks | Comments (61)

Bookmark and Share
 
Comments

That bid is low.

It might even be less than the value of the company's current inventory.

Posted by: Quaker in a Basement on April 6, 2007 at 1:08 AM | PERMALINK

His bid was contingent on DC shouldering "some of the health and pension benefits of retirees" and DC reaching a "satisfactory" new contract with the UAW. Lots of wiggle room there. Best part of the LA times article is it saying that analysts put the value of Chrylers between 0 and 13 billion.

Really, equity analysts are worthless. The company is worth whatever the heck someone will pay for it. Imagine if all those Ivy League 20 somethings putting in 60-70 hours a week would try to invent a cheap reliable solar powered desalinization machine

Posted by: scott on April 6, 2007 at 1:11 AM | PERMALINK

What Quaker said.

And how's Ford doing? Aren't they next in line?

Scott, valuation would depend on all sorts of variables like included debt, pension and health care obligations. I would't really slam the analysts so much as journalists who too often include information they don't understand and lay it out in a context that exposes their ignorance.

I never agreed with anything in the paper that I knew anything about. Tend to apply that test to everything else I read.

Posted by: notthere on April 6, 2007 at 1:32 AM | PERMALINK

At least Chrysler makes some tangible physical product.

Mark Cuban got $2B from Yahoo for exactly what?

Posted by: gregor on April 6, 2007 at 1:34 AM | PERMALINK

More pathetic: That youtube is worth one-third of Chrysler.

Posted by: chrysler on April 6, 2007 at 1:35 AM | PERMALINK

This is more of a business story, but there was talk that Daimler would have to *pay* someone to take Chrysler off their hands, given Chrysler's large financial obligations from pensions and health care costs. This finally unravels the collosal blunder that Daimler made - this has been nothing but trouble for Daimler-Benz.

Posted by: Andy on April 6, 2007 at 1:40 AM | PERMALINK

No, Daimler didn't make a mistake by buying Chrysler: North America made all the profits just a couple of years ago. And now, all the good cars Chrysler is building are based on Mercedes technology. The firms are wedded at the hip. German shareholders have never been happy about buying Mopar, but the fact they're screaming in 2007 has little to do with the fundamentals of the company. (... of course, pension and health-care problems aside...)

But this:

And how's Ford doing? Aren't they next in line?

needs rebuttal. Ford isn't doing particularly well, true, but some of their products are pretty good and among those a few are even selling pretty well.

But Ford will never -- ever -- be sold. Liquidated, perhaps. But never sold. Why? Because the Ford family still controls enough shares to say "no." Look at the stock ownership.

Let's all remind ourselves: what's the name of the company? What's the name of the President of the company?

Oh, yeah. "Ford."

Posted by: stickler on April 6, 2007 at 1:52 AM | PERMALINK

Maybe Kerkorian'll run Chrysler with the samee excellence he applied to MGM. Twice.

As old as he is, can't he do the world a favor and just keel over?

Posted by: TCinLA on April 6, 2007 at 1:57 AM | PERMALINK

Stickler --

That was true once for a whole load of companies who didn't and were. Liquidate and sold, that is.

We'll see.

Posted by: notthere on April 6, 2007 at 1:59 AM | PERMALINK

It's telling that even the Germans couldn't run an USAmerican automotive company profitably.

Posted by: Disputo on April 6, 2007 at 2:14 AM | PERMALINK

DaimlerChrysler itself is pathetic.

Posted by: Donald from Hawaii on April 6, 2007 at 2:19 AM | PERMALINK

Kerkorian offered $23 billion for Chrysler in 1995. He has said that Daimler ripped him off in 1998 when they merged with Chrysler as "equals"... kind of like when Nations Bank acquired Bank of America as "equals", or wolves acquire sheep as equals.

Daimler-Chrysler shares went up because if the sale goes through, they get rid of a huge liability AND get paid for it.

Posted by: anonymous on April 6, 2007 at 2:31 AM | PERMALINK

It's all about the American way. Of health insurance, that is. No company wants the obligation. We should have national health care.

Posted by: Richard W. Crews on April 6, 2007 at 2:47 AM | PERMALINK

Actually, Richard W. Crews is right. The trouble in the automobile industry can be linked in large part to our failure to institute universal healthcare. It is hard for GM, Ford and Chrysler to compete with Toyota, Honda and the Germans if they are required to foot their workers healthcare and the Japanese and Germans aren't.

Posted by: Ron Byers on April 6, 2007 at 7:16 AM | PERMALINK

Umm. Those Japanese companies run profitable operations in the US AND they pay health care benefits. They don't pay as much as the union auto plants and they don't have legacy costs, but there are other factors that allow them to underprice the former "Big 3". UAW and management need to get together to push for national health care. In the long run, UAW retirees are not protected when GM can spin off Delphi and offload benefit obligations or reduce employee numbers with buyouts. A system of guaranteed benefits that transfer would offer workers more security. There are a lot of steel workers that lost all their benefits when big companies went belly up.

Posted by: bakho on April 6, 2007 at 8:21 AM | PERMALINK

Of the three choices of pathetic, I choose "That I can't figure out why anyone would even bid that much?"

But I wouldn't call anyone pathetic in this case. It just takes a skill set in a certain area that most people don't bother developing since they don't have the billions to make bids for companies. It must be fun. Why else would a 90-year old man do it?

Posted by: Bob M on April 6, 2007 at 8:47 AM | PERMALINK

You forgot:

Why can't Americans make money building a selling cars?

Posted by: klyde on April 6, 2007 at 8:49 AM | PERMALINK


Let me get past Kevin's gross generalizaiton about analysts.

Thus, two suggestions that would double the value of Chrysler, if implemented:

First, move Chrysler off of the Dana axle and onto the Benz axle. Second, bring together the chief mechanics of the Chrysler dealerships in the USA, into one room in order to implement a consumer-oriented 'remake' in which maintenance is addressed adequately. And if implemented, things would improve drastically, in which the probable outcome would be that Chryler would begin competing with Lexus. In any event, Chryler would easily surpass Nissan's Maxima as the next step-up before Lexus.

Just a Thought From Indian Counry.

Jaango

Note: And as a small business owner, I recognize value that comes from constantly perfecting the "product".

Posted by: Jaango on April 6, 2007 at 8:55 AM | PERMALINK

Kerkorian will be free to do what he wants with Chrysler, maybe he'll be able to do something good. He sure has had a big hankering for the company for quite a while now.

Posted by: jerry on April 6, 2007 at 9:02 AM | PERMALINK

Those upstart Japanese automobile plants in America have young workers who need relatively little health care, for the time being. American firms have older worker and retiree heatlh to deal with. Maybe we should let American firms dump their expensive old employees (Circuit City?), kill all the retirees, and compete on a level field with the new Japanese manufacturers?

Or, maybe the Democrats will tale quick action to save American industry by shifting us closer to an efficient medical model like the ones implemented by the rest of the world, including the Army.

Posted by: freddy on April 6, 2007 at 9:08 AM | PERMALINK

And now, all the good cars Chrysler is building are based on Mercedes technology.

Chrysler also has Jeep, which AFAIK doesn't use Mercedes technology. Jeep's probably the most valuable part of the company.

Posted by: Peter on April 6, 2007 at 9:24 AM | PERMALINK

Quaker thinks the bid is low while Kevin thinks the bid may be high? Daimler-Chryslar is worth $175 billion at today's market price, but who knows what this US portion is really worth. If the spin-off includes the liabilities of this US dog - then the value of Chryslar (assets minus liabilities) may even be negative. Figuring this out strikes me as harder than figuring out the long-run value of the Social Security Trust Fund.

Posted by: pgl on April 6, 2007 at 9:36 AM | PERMALINK

A joke from a year or so after the merger: Do you know how to pronouce DaimlerChrysler in
German?

Daimler. The Chrysler is silent.

Posted by: anandine on April 6, 2007 at 10:04 AM | PERMALINK

More pathetic: That youtube is worth one-third of Chrysler.

Well, I'm pretty sure that most people would rather watch a video of some guy getting hit in the nuts with a baseball than buy my Cirrus right now.

Posted by: Ringo on April 6, 2007 at 10:11 AM | PERMALINK

Never understood the argument that US auto companies can't compete with the Germans and Japanese because of health care costs. US companies pay costs directly in a private system, but surely Japanese and German companies and/or their employees pay health costs indirectly through their taxes. Even given the presumed increased efficiency of a single payer system, the burden of health care costs shouldn't be orders of magnitude different in the two situations.

Need another excuse. Crappy/arrogant management and labor habits going back to the fat and happy era of the 50's and 60's is my guess. Read David Halbertam's The Reckoning for an enlightening account of the story through the '80's.

Posted by: just sayin on April 6, 2007 at 10:16 AM | PERMALINK

>"Why can't Americans make money building a[nd]selling cars?"

Long ago, during the early days of the original Japanese car invasion, I read a quote from a business analyst who had international expertise.

He described a fundemental difference between american business and business elsewhere as follows: (roughly parpahrased).

Ask an American auto executive what their goal is and they will answer "To make money". Ask a Japanese executive the same question and they will answer "To build the best cars and make money doing it".

That slight difference explains a lot about the state of our nation. The american business goal has been achieved.

We really don't 'make' anything here anymore except 'money'... and that money doesn't represent real value, only the churning of ever-increasing debt through the financial industry.

When the debt well runs dry... look out.

Posted by: Buford on April 6, 2007 at 10:16 AM | PERMALINK

Kevin,

Your third question sort of suggests the answer to the second or, at least, should suggest an answer you would agree with.

Posted by: Yancey Ward on April 6, 2007 at 10:17 AM | PERMALINK
Never understood the argument that US auto companies can't compete with the Germans and Japanese because of health care costs. US companies pay costs directly in a private system, but surely Japanese and German companies and/or their employees pay health costs indirectly through their taxes.

Look at the healthcare costs in the US, per capita, per GDP, or however you want. Even assuming, as you seem to, that in the end the burdens must be distributed effectively equivalently in another system as in the US system (which is spurious itself), the fact that the US system is so incredibly inefficient means that the burden on US firms from healthcare expenses is vastly greater when you assume that a firm in each system pays ultimately (directly or through taxes that pay for the public system or through increased wage demands that pay for the employees direct share) the same share of its employees healthcare costs.


Posted by: cmdicely on April 6, 2007 at 10:28 AM | PERMALINK

Ah, Kevin.

You just don't understand econmomics.

THis is the price the market will bear. Investment bankers evaluating the capital assets and long term projections. Selling a company is just like sellign any other commodity. All it is is about where the supply and demand curves meet.

Can you imagine a government run by Kevin Drum trying to price Chrysler. "Oooh, we have to make sure all the workers have a living wage." WHaterver that is.

Posted by: egbert on April 6, 2007 at 10:29 AM | PERMALINK

Why can't Americans make money building a selling cars?

I dunno, but I think the fact that the Big 3 have responded to consumers apparent increased desire for smaller, more fuel efficient cars in the last few years with a raft of new large car models, intensified marketing of the giant beasts, and successful lobbying to get the government to change how it rates fuel economy to reduce the rating advantage of hybrids, rather than actually responding to demand, while Honda and Toyota, for instance, have followed up on the interest awoken by the Insight and Prius with hybrids throughout their lineup, and, even aside from hybrids, have reinforced (and made the center of marketing campaigns, at least in Toyota's case) their lineup of small, relatively economical non-hydrid cars.

Posted by: cmdicely on April 6, 2007 at 10:40 AM | PERMALINK

The American companies haven't made money selling sedans in many, many, years, and their profitable vehicles are pretty much limited to trucks and SUVs. Now that Toyota has a full size truck plant in San Antonio, and Honda's Pilot has taken off, it can be expected that those segments of the market for the Ameicans will come under the same sort of pressure that Toyota and Honda created in the sedan segment.

The American companies have never addressed the issues which destroyed their ability to make money on sedans, but lest this sound too harsh, it must be remembered that the issues would be difficult for even the best management to deal with, especially in regards to legacy costs. The Americans, unfortunately, have had far from the best management, which has only made matters worse. Frankly, until their defect rate begins to approximate that of the Japanese models (last I saw them thy were still running about 33% higher), their chances of improving their positions more than marginally, long term, seem slim.

Posted by: Will Allen on April 6, 2007 at 11:22 AM | PERMALINK

It is hard for GM, Ford and Chrysler to compete with Toyota, Honda and the Germans if they are required to foot their workers healthcare and the Japanese and Germans aren't. Posted by: Ron Byers

Nice idea except that at least 80% of the Japanese cars N. Americans buy are manufactured in N. America with a certain percentage of their content being made here as well.

As for the German auto makers, they produce mostly high end niche products, except for VW, which has been in financial trouble itself for years. And Chrysler's woes are now, of course, Daimler's, who was already having financial troubles as well.

They must have been smoking crack when they signed off on that deal.

Posted by: JeffII on April 6, 2007 at 11:40 AM | PERMALINK

Here is pathetic – Six years after 9-11 and they are just now proving that Saddam Hussein and al-Qaeda had nothing to do with one another??? WTF?

Posted by: The Conservative Deflator on April 6, 2007 at 11:46 AM | PERMALINK

I never understood the health argument either, for the thousands of workers per plant in the sixties has given way to thousands of robots and a lot less people who need health care. Maybe the companies are counting robot maintenance as a health care expense.

Seriously, car company healthcare should be the great shining example for rightwingers, since the private US healthcare system should bring in cost savings with its market efficiencies, as was pointed out above, and the awful national healthcare systems should bring in ruinous taxes, both expressed in car prices.

Posted by: Bob M on April 6, 2007 at 11:49 AM | PERMALINK

The American companies have never addressed the issues which destroyed their ability to make money on sedans, but lest this sound too harsh, it must be remembered that the issues would be difficult for even the best management to deal with, especially in regards to legacy costs.

Balderdash! The reason why no one is buying American cars is because they stink! They're gaudy, uncomfortable and pathetic.

A case in point--I drive a Lexus SUV. Smooth ride, attractive interior. This is the way I roll, homies. I do not play the thump-thump music but I do play a bit of rock and roll from the 1960s and I can blow the doors off any hoopdie ride I come across.

After hitting a deer this past February, I had to take the SUV into the dealer for repairs. (The deer died! Sorry, liberals. This is how I roll.)

The "loaner" car that I was given was a monster, a horror to drive. They made me drive a Chevrolet Impala. The car was filthy--it was full of peanuts in the shell and unimaginably horrible CDs were under the passenger seat. It smelled of cabbage and hairnets. The center console was a joke--no where for me to put my BlackBerry--and the cup holder was too small for my Margarita glass. (I drink water out of a Margarita glass when I drive because it's easier for me--not alcohol, at least, not anymore.)

As I would drive around in this Chevy, gangbangers and wannabes would wave their arm in the air and give me the OK symbol. Not something I wanted to be associated with. At one point, I contemplated running the thing into a light pole just to kill it and get a better loaner car. I could have upgraded--but why should I have to go get a rental car just to get out from under that turkey.

The bottom line--you Chevy drivers have to have something seriously, seriously wrong with you.

Posted by: Norman Rogers on April 6, 2007 at 11:53 AM | PERMALINK

It all comes down to quality.The big three learned little from the seventies but the japanese and consumers did;i.e. that it's cheaper in the long run to spend a little more on quality than to buy some shitbox that will nickle and dime you to death.Somehow the japanese are able to make cars that generally don't fall apart after two or three years.The big three continue to produce for the most part,crap.

Posted by: Albert on April 6, 2007 at 11:53 AM | PERMALINK

scott: The company is worth whatever the heck someone will pay for it.

And if Kirkorian really is ready to pay $4.5, then the value of DC shares has increased, since he is willing to pay more than they currently trade at. As Scott might have written, Chrysler is worth next to nothing if nobody buys their cars and manufacturing plant; it could be worth $13B if Kirkorian can turn it around and sell all of their cars that are produced.


And why is the purchase "pathetic"? Entrepreneurs make these gambles all the time. Some are successful, some are not successful. Only people who sit around writing all the time think that you can always tell in advance what will work and what will not work.

Posted by: MatthewRMarler on April 6, 2007 at 12:02 PM | PERMALINK

klyde: Why can't Americans make money building a selling cars?

Lots of Americans do. South Carolina makes more Mercedes brand autos, and exports more to the international market, than Germany makes. Thenext time you see a late model car with the three-pointed star, say to yourself: "That car was made in South Carolina." Americans in Texas make the excellent Toyota Tundra pickup truck.

Posted by: MatthewRMarler on April 6, 2007 at 12:09 PM | PERMALINK

South Carolina makes more Mercedes brand autos, and exports more to the international market, than Germany makes. Posted by: MatthewRMarler

No they don't. That plant builds a version of the Daimler-Benz commercial van under the Dodge label. Annual production at that plant is only 32,000 units. MB probably sells that many units in one state in Germany every year.

http://e-carzone.com/news/auto_4201.shtml

The largest MB plant in the U.S. is in Alabama producing SUVs. I don't believe MB produces sedans or coupe in the U.S., which is still probably 4/5th of their product line.

Posted by: JeffII on April 6, 2007 at 12:26 PM | PERMALINK

It seems to be a negotiating offer instead of a serious final offer.
Far more interesting is The crappy LA Times deal
The Tribune Company last night disclosed new details of its plan to go private in a complex deal engineered by the real estate tycoon Samuel Zell, including provisions that will give Mr. Zell broad authority over corporate activities.
The company reported that although Mr. Zell will control only a minority of the board, he will have the right to veto any major transactions. The employees, who will get company shares but who will no longer get 401(k) contributions from Tribune, will have far less control.
...
Employees will be allocated shares from the ESOP each year, the filing said, in proportion to their annual pay. But in most cases they will not be able to cash in any of their stake for at least a decade, and then only if they are retired or are over 55 and have worked for Tribune for at least 10 years....

Well, it used to be a good newspaper. It even won Pulitzers a few years ago.

Posted by: Mike on April 6, 2007 at 1:05 PM | PERMALINK

Norman must look like a complete badass with his mom in the passenger seat bellowing driving instructions while plucking her unibrow in the mirror.

Don't worry Norman, you'll get your driver's license one day.

Posted by: NSA Mole on April 6, 2007 at 1:23 PM | PERMALINK

Norman must look like a complete badass with his mom in the passenger seat bellowing driving instructions while plucking her unibrow in the mirror.

No, Mother is in her grave, sir.

How about you fuck off with your persistently unfunny and snide little remarks, eh? Unlike you, I have a purpose here.

Posted by: Norman Rogers on April 6, 2007 at 1:32 PM | PERMALINK

JeffII on April 6, 2007 at 12:26 PM

thank you for the correction. I shall have to be more alert to news on this topic in the future. What i quoted I did read in a reputable source some years back, but my memory may be faulty or the source (though reputable) may have been mistaken.

Posted by: MatthewRMarler on April 6, 2007 at 1:33 PM | PERMALINK

I never understood how any Daimler executive could look at a Chrysler product and not laugh, and then have a heart attack when he was told Daimler was buying it.

Posted by: Mooser on April 6, 2007 at 1:39 PM | PERMALINK

Unlike you, I have a purpose here. Posted by: Norman Rogers

Yes you do, Norman. And your "special" purpose (please see The Jerk for clarification) is, like Al, idiot whipping boy. Keep up the good work!

Posted by: JeffII on April 6, 2007 at 1:43 PM | PERMALINK

I dunno, but I think the fact that the Big 3 have responded to consumers apparent increased desire for smaller, more fuel efficient cars in the last few years with a raft of new large car models,

Not really. Automobile design and production takes several years. The models you are seeing now were "launched" as product four or five years ago. Furthermore, both GM and Ford have introduced new econo-boxes in the last couple of years.

. . . and successful lobbying to get the government to change how it rates fuel economy . . .

This, too, is old news having happened three years ago, well before the most recent spike and higher plateau in oil prices.

. . . , while Honda and Toyota, for instance, have followed up on the interest awoken by the Insight and Prius with hybrids throughout their lineup, . . . Posted by: cmdicely

At the same time Toyota (America - never in Japan) introduces is biggest pick-up truck yet, and Honda (America - never in Japan) finally rolls out its first pick-up truck (several years in the planning) just in time to coincide with the recent spike and higher plateau in oil prices.

Posted by: JeffII on April 6, 2007 at 1:51 PM | PERMALINK

Kirk K. and his right-hand machette Jerry York were annoying GM just a few months ago by trying to force GM into an alliance with Carlos Ghosen and Nissan/Renault. Look for that deal to show up again with Chrysler as both bride and dowery.

Posted by: Jim 7 on April 6, 2007 at 1:54 PM | PERMALINK

MatthewRMarler

Way to deliberately misunderstood the question. You desreve a golf clap for that one.

clapclapclapclapclapclap

Posted by: klyde on April 6, 2007 at 2:01 PM | PERMALINK

misunderstand

Posted by: klyde on April 6, 2007 at 2:03 PM | PERMALINK

I think what we're all saying is that increasing gas prices were on the horizon and why didn't the US car companies at least try to have something in their line-up that could handle it?

US automobile manufacturers have been treating the US small car market with disdain ever since the invasion of the Japanese back in the 1970s. Which is really bizarre because they do make some good peppy little cars for the European market which could be readily adapted. But nooo...it's too much BOTHER and might cut into the market for all those honkin' SUVs. So the customers get pissed off and go buy smart little foreign cars instead and GM is Horribly Upset about the Effect on the Bottom Line.

And anyone who is whining about the "horrible shock" of an expense that's been pretty predictable for the last 20 years has no brains being in business, period. US automobile companies whine about pensions and medical expenses because they're hoping they can shove off the responsibility onto someone else.

I lost all respect for US automobile manufacturers when I read the comment from some mid-level manager nitwit about how There Would Always Be A Market For Buicks because as Americans aged, they just got fatter and would just naturally have to gravitate to cars with seats for broad-beamed people....

Posted by: grumpy realist on April 6, 2007 at 2:24 PM | PERMALINK

No, Mother is in her grave, sir.

No wonder you post your crap at all hours of the day. Mommy isn't there to take away your computer access.

It's time you grow up and start controlling your impulses. Now that Mom can't give you timeouts, you need to "timeout" yourself.

Walk away from the computer, get a job, and stop living off of mom's insurance.

Posted by: NSA Mole on April 6, 2007 at 2:25 PM | PERMALINK

I think what we're all saying is that increasing gas prices were on the horizon and why didn't the US car companies at least try to have something in their line-up that could handle it? Posted by: grumpy realist

If you're such a realist, why would you ask this question? Pick-up trucks and SUVs have been the cash cow for U.S. automakers for at least a decade, and this is the case because most Americans are selfish idiots who really can't be bothered with environmental or economic costs of driving poorly manufactured and functionally useless gas hogs

Other than a relatively limited number of people "in the trades" or agriculture why does anyone living south of the Mason-Dixon needs a pick-up truck let alone an SUV? There are no real mountains, and it sure as hell doesn't snow all that much there. In fact, this is a valid question for the suburban and urban areas throughout the U.S.

Having an overlord class who doesn't give a shit about the great unwashed masses because they have an economic and, in many cases, a literal physical barrier protecting them from the fall out of their policies, are more than willing to enable this extension of "individuality" and bread and circuses by promoting interest rates low enough that every yahoo in the country can get him/herself a shiny new truck!

We all know that when the Big Three finally go tits up or at least cease to exist as independent (from other auto firms) companies, that the top layer of management will not bear any of the economic burden of either a merger or outright demise.

That's being a realist.

(I gotta cut down on the coffee.)

Posted by: JeffII on April 6, 2007 at 2:43 PM | PERMALINK
Not really.

Yes, really.

Automobile design and production takes several years.

This point is not in dispute.

The models you are seeing now were "launched" as product four or five years ago.

Right. A time when a lot of ink had been spilled by analysts about leading indicators of consumer interest in economy that had not yet materialized in a big way in buying decisions, a time when the Honda Insight had spent a few years priming the pump by demonstrating the potential of highly-efficient gasoline auto from a major manufacturer, and about the time of the very successful US introduction of the Toyota Prius.

That's exactly what I'm talking about.

Furthermore, both GM and Ford have introduced new econo-boxes in the last couple of years.

Yes, sure, I know that. Heck, I've got a Chevy Aveo, so I really know that: if you go to a Ford or Chevy dealer looking for an economy car, you'll find one.

OTOH, none of them have been launched with the kind of advertising blitz around economy as, say, the Toyota Yaris. At least one of those two did include bits in a broader, brand-building ad campaign highlighting the overall economy of the makers line, along the lines of "...and we have X many models getting better than Y mpg". The US makers have made sure that if you know you want to buy, say, a Ford but also want economy, they've got something to sell to you when you walk in the door. They've tried to make sure that if you, e.g., have Ford brand loyalty, but are thinking about going elsewhere for economy, you are reassured. They haven't done much to market their economy offerings to people who aren't looking to their particular brand as the starting point. And that's, I think, a big part of their weakness in that segment.

At the same time Toyota (America - never in Japan) introduces is biggest pick-up truck yet, and Honda (America - never in Japan) finally rolls out its first pick-up truck (several years in the planning) just in time to coincide with the recent spike and higher plateau in oil prices.

Yeah, Toyota and Honda are getting some coverage in a parts of the market where they had little-to-no presence previously, while at the same time doing a good job of positioning themselves in other segments.

The Big 3, OTOH, are fighting to hold the turf that they've held largely exclusively in the past, while not responding well to demand in other segments.

Posted by: cmdicely on April 6, 2007 at 2:50 PM | PERMALINK

I never understood the health argument either, for the thousands of workers per plant in the sixties has given way to thousands of robots and a lot less people who need health care. Maybe the companies are counting robot maintenance as a health care expense.

No, you're ignoring the fact that the car companies are still paying the health care costs of those thousands of workers from the Sixties who are now retired, on top of the health care costs of their current employees. Once they retire their health care costs don't just disappear -- in fact, they go up as they get older.

Posted by: Stefan on April 6, 2007 at 4:13 PM | PERMALINK

I’m speculating but I think the “Chrysler-as-loser” narrative is largely spin, and one that is now perversely being promoted by the German parent, DaimlerChrysler (or DCX)…however, if one looks at the history of the division since the 1998 merger, I believe it has suffered from gross mismanagement on the part of Stuttgart, headquarters of DCX.

As best as I can Google the financials, the Chrysler division showed profits in the years 1999, 2000, 2002, 2004 and 2005. It was unprofitable in 2001, 2003, and 2006. Total profits $9 billion…losses $4 billion…net profits about $5 billion – not exactly stellar but not in the doghouse either. I understand Chrysler also brought $10 billion in cash to the table at the time of the merger.

Chrysler was the most profitable automaker in the world in 1998…after the merger American talent at Chrysler shortly bailed or was forced out – that includes such names as Thomas Stalkamp (who worked with closely with suppliers) and Bob Lutz (Lutz is now at GM and leading the product turn-around there). At the time of the merger it was hoped that Chrysler would tap Mercedes legendary engineering expertise, but Germany resisted.

Dieter Zetsche was installed to turn around the financials at Chrysler after the American talent was forced out. Having done so, Zetsche was rewarded with the chairmanship of DCX. Zetsche’s last year as head of the Chrysler division was marked by a landmark $1.5 billion loss, and Zetsche finally decided in 2006 (some 8 years after the merger) to fold Chrysler engineering into Mercedes – a long overdue cost savings measure and, presumably, a strategy to finally insure lasting product quality at the American division.

I’m wondering if it the prospect of de-facto integration of the two brands that has actually triggered the stockholder revolt, and has forced Zetsche to put Chrysler on the block. The Germans are deathly afraid of compromising the Mercedes brand by folding what is perceived as a downmarket Chrysler into Mercedes…last year’s loss is simply a convenient peg upon which to hang a Chrysler divestiture…

Posted by: ricardo on April 6, 2007 at 4:56 PM | PERMALINK

Ford has been slashing payroll. I think they will look very smart in a few years while GM goes BK. I predict Ford will be the last auto mfg in America because they are taking the pain now and not trying to postpone it any longer.

Trading at 4.16 at today's open. That is probably a buy.

Posted by: Brojo on April 6, 2007 at 4:59 PM | PERMALINK

Chrysler was the most profitable automaker in the world in 1998…Posted by: ricardo

Citation, please.

Posted by: JeffII on April 6, 2007 at 5:10 PM | PERMALINK

I thought the whole DaimlerChrysler thing was dissected some time ago as the brainchild of whoever was the head of Daimler at that time and who had a bee in his bonnet about US acquisitions. Everyone else thought it stunk at the time but couldn't convince him otherwise. After the loss of those four years, there was enough momentum among the BOD to turf him out and now they're repairing the damage.

Didn't Ford tie up with some Italian car manufacturer at the same time, which they backed out of with similar loss of $$$?

Posted by: grumpy realist on April 6, 2007 at 5:37 PM | PERMALINK

Grumpy:

Not Ford, but GM. They hooked up with Fiat in a peculiar deal to share technology that included an absolutely weird provision that if GM didn't outright purchase the entire Fiat empire (Fiat, Lancia, Alfa Romeo, Ferarri/Maserati) by some date certain, they were compelled to pay Fiat $1 billion in cash. The deal was criticized at the time because Fiat brought almost nothing to the table that GM didn't already own through its European subsidiary, Opel/Vauxhall. Oh, and Fiat had outstanding debt on a Chrysler level too, so when the deadline arrived, GM was stuck with the big payout. Meanwhile, Fiat appears to be making something of a minor comeback in the European market.

Posted by: SalHepatica on April 6, 2007 at 6:10 PM | PERMALINK

"No, you're ignoring the fact that the car companies are still paying the health care costs of those thousands of workers from the Sixties who are now retired..."

I'm not ignoring it. I didn't know it. Wow. That would be mighty expensive indeed....

Posted by: Guy Banister on April 6, 2007 at 8:07 PM | PERMALINK

JeffII:

Here's one citation:
http://money.cnn.com/1998/05/07/deals/benz/

The money quote (toward the bottom of the page):
"By the mid-1990s, Chrysler was the most profitable car company in the world."

Posted by: ricardo on April 6, 2007 at 9:05 PM | PERMALINK




 

 

Read Jonathan Rowe remembrance and articles
Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

Advertise in WM



buy from Amazon and
support the Monthly