Why Daimler Wanted Out Of Chrysler

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S&P auto analysts came out with a report late last week that indicated a poor US economy could derail any attempt by the Big Three automakers to fix their North American operations. That seem obvious, but it may have been the reason that no one quickly stepped up to pay billions of dollars for Chrysler.

But, Daimler appears to have been willing to part with Chrysler at almost any price.

Reuters quoted WirtschaftsWoche business weekly as saying that Magna International and Canadian financial firm Onex would each by 40% of the car maker. DaimlerChrysler (NYSE:DCX) was to hold the balance. Magna, a large car parts supplier, knows the dangers of buying a troubled auto firm in the US, but appeared to want to move ahead. Magna just took an investment from a Russian billionaire who allegedly has ties to the mob in his home country. The move may have made Magna’s bid less attractive.

But, the Reuters report was wrong.

Over at The Wall Street Journal, the handicapping was that private equity firm Cerberus would get Chrysler. Daimler might get little cash under the arrangement, but would part with $18 billion in pension and benefit liabilities. Daimler would keep a minority interest under this plan.

The UAW does not like the idea that private equity could own Chrysler, which means that they may attempt to block the sale through lobbying Daimler’s board or even threatening a strike.

But, this is the perplexing thing. If private equity firms and a Canadian car parts company think they can fix Chrysler, and may even be willing to take on a huge liability for the privilege, what is wrong with the people who run Daimler? DCX management could certainly claim to be in the top tier of auto executives in the world. Daimler has the financial resources to attempt a fix at its US arm, and, it has fixed it once before.

The answer is probably that Chrysler has almost no sales outside the US, and Daimler thinks this is essential to its overall future. Overseas sales have certainly been critical to GM’s (GM) and Ford’s (F) abilities to remain viable, and they are at the heart of Toyota’s (TM) strategy to keep growing.

Ninety percent of Chrysler’s cars are sold in North America. It sold only 207,000 cars overseas last year. Fifty-five percent of GM’s sales were outside the US.

Daimler’s Mercedes unit is an international brand. Chrysler is not. Going forward, DCX is not willing to have that many eggs in one market basket.

Douglas A. McIntyre