Can the Chrysler Logo be merged with another one?
Almost on a daily basis, someone from Chrysler’s management team repeats, mantra-like, that the desperately-troubled automaker is not for sale. While it does appear that stalled talks between parent Cerberus Capital Management and General Motors aren’t going anywhere, few believe that the New York-based private equity firm is now content to keep the financially-hemorrhaging Chrysler on its books.
Is the chief barrier to a sale the credit crunch? Chrysler Vice Chairman Tom LaSorda knocked down reports that Chrysler was negotiating to sell the Jeep brand, possibly to Magna, the giant Canadian parts supplier. However, while Chrysler Chairman Robert Nardellli insists Chrysler can make it on its own, the reports about possible deals show there is still interest in the struggling automaker despite the steep decline in the company’s sales.
The real difficulty is that almost everyone on the list of potential buyers that has surfaced, General Motors Corp., Nissan/Renault, Magna and Russian tycoon Oleg Deripeska, are facing their own financial problems. Deripeska is being hounded by creditors and could lose portions of his metals empire; Nissan just posted its first loss in years; and GM has to obtain government approval before spending anything more than $150 million, which is slightly more than Chrysler’s current price tag. Magna, while financially healthy, would probably need financial help to swallow Chrysler but is undoubtedly reluctant to engage a financial partner that could threaten its own independence.
Even more remote potential partners, such as Indian or Chinese automaker, are facing their own financial challenges now.
The real key, however, remains the credit markets and investors’ ultimate appetite for risk, which could be limited for some time to come. Thus, Cerberus Capital Management’ best solution, possibly the only solution, is to let Nardelli and company run Chrysler, as best they can, through the recession. Keeping Chrysler intact through the downturn, while would-be buyers heal their own balance sheets and credit ratings, is also probably a better strategy than trying to sell it piecemeal to junk dealers.
Cerberus is also counting on big concessions from the UAW. But the chance of concession also seem remote given that the union is certain to demand some kind of quid-pro-quo such as a right to review any deal. Keeping the union happy was probably one of the reasons LaSorda spoke out. Cerberus may be as eager to sell as a retailer stuck with unsold Christmas presents in January, but its options really are limited at this point.