Nissan, Renault Seek Stake In Chrysler
Chrysler has been in the news a lot lately, thanks mostly to owner Cerberus Capital Management publicly pronouncing that the automaker is for sale. Just one year after acquiring Chrysler from the company now known as Daimler AG, Cerberus wants to ditch Chrysler.
General Motors is the one Chrysler suitor who has been getting all of the attention lately, but that arrangement may not be made. Cerberus already owns 51% of GMAC, which is GM’s financing arm, and would love to purchase the remainder from GM. In exchange, Cerberus would unload Chrysler to GM who would presumably keep Jeep while cutting the Chrysler and Dodge brands.
General Motors Can’t Arrange Financing
The problem with General Motors is that the automaker is struggling financially itself and finding it difficult to arrange the financing to acquire Chrysler. Part of the acquisition costs of taking over Chrysler would be the cost to shut down excess plants while providing lucrative, but costly severance packages to tens of thousands of workers. GM is in no position to buy Chrysler unless the federal government intervenes. Right now, the feds are busy putting out fires caused by the mortgage meltdown, and has been paying scant attention to what is unfolding in Detroit.
The newest wrinkle in the Chrysler sale is that Nissan and Renault are reportedly interested in getting a piece of Chrysler. Right now, French automaker Renault owns 44% of Nissan, while Japanese automaker Nissan owns 15% of Renault. The two automakers have a unique business relationship that has successfully married two dissimilar brands with both companies sharing one CEO, Carlos Ghosn.
A Nissan-Renault-Chrysler Triumvirate?
The terms of the Nissan-Renault bid have not been completely spelled out, but it would likely involve having Renault buying 20% of Chrysler and having Nissan foot the bill. Renault has several billion dollars of debt to contend with, while Nissan is awash in cash and could provide the funding for Renault.
An arrangement between Nissan, Renault, and Chrysler makes sense for two reasons:
Nissan and Chrysler have several new agreements already in place. These include Nissan building a small car for Chrysler’s Latin American network as well as providing a midsize car for Chrysler through the one of the company’s Tennessee factories. Chrysler has promised to provide the platform for the next generation Titan pick up truck which will likely be updated in 2011.
Renault could use Chrysler as a way to reenter the highly competitive US market. Back during the 1980s, Renault owned American Motors Company – which at that time owned Jeep – but sold the company to Chrysler who kept Jeep while tossing the AMC brand. Renault could supply some models for Chrysler and Dodge or even reintroduce its own branded cars through the Chrysler LLC dealer network. For its part, Renault could gain access to selling Jeep models across Europe.
GM Needs Some Cash…Fast!
As for GM, the company may not be left entirely out in the cold should Renault and Nissan get their way. Cerberus has been looking at acquiring the rest of GMAC, something GM could allow in exchange for some much needed cash and perhaps their own stake in Chrysler. Whatever takes place will likely happen fast – Chrysler being on the ropes does nothing to bolster consumer confidence, a surefire way to scare off potential buyers who are already being hammered by the worst financial crisis of this young century.
(Source: The Detroit News)
Renault Pitch For Chrysler Makes The Most Sense
Talk of Cerberus selling off Chrysler isn’t going away, perhaps suggesting how serious the private equity firm wants to get out of the automotive building business. Cerberus seems content with owning GMAC and would like to gain full control over GM’s financing arm, but GM’s board seems cool to the idea of acquiring Chrysler in exchange for selling off GMAC.
Renault remains a possible bidder for Chrysler, given its desire to reenter the US market and its own relationship with Nissan. Renault and Nissan have huge financial stakes in each other and are both managed by Carlos Ghosn who has been working on putting together a number of platform or model sharing agreements with Chrysler all year.
Nissan has a strong foothold in the US market, while Renault has been on the outside looking in ever since Chrysler bought out Renault’s stake in the American Motors Corporation (AMC) in 1987. Not many people remember Renault since the company exited the market which is a good thing because quality levels during that time were not good.
Taking over Chrysler would allow Renault to transition in some of its own models over a period of time. As certain current Chrysler or Dodge models age out, Renault replacements could take over. Whether badged as a Renault or sporting Dodge/Chrysler tags, Renault could keep costs low by spreading its technological love across the Atlantic. Clearly, there is some value in existing Chrysler LLC products including anything Jeep, the company’s line of minivans, and the Dodge Ram pickup truck.
For its part, Nissan would gain access to some of Chrysler’s production capacity and can still use Chrysler to supply the Titan’s platform thanks to the Dodge Ram. In addition, should Renault desire to maintain either Chrysler or Dodge (or both), they can grab some cars from Nissan while supplying these brands with whatever they want.
Because Chrysler LLC is privately held, we don’t know how much of a drag the automaker is on Cerberus, but we do know that it has to be huge given the automaker’s 25% sales drop year to date.
Chrysler And Bankrutpcy, Is This Possible?
I’ve said previously that Chrysler LLC’s ability to stay independent wouldn’t last. After all, the company is too dependent on North American sales and weathering the current crisis alone looks to be a near impossible feat.
In April, Nissan and Chrysler announced a deal whereby Chrysler would provide the platform for the next generation Titan truck, while Nissan would build a small car for Chrysler to sell stateside. I theorized then that this was the start of an eventual Renault-Nissan-Chrysler alliance and I’m sticking to my guns with that.
Now comes word that Chrysler LLC CEO Bob Nardelli has warned employees that industry-wide U.S. sales in June are expected to fall to the lowest level in 16 years. Not too much of a surprise, given that Chrysler especially is overly dependent on big vehicles. A few bright spots like the Dodge Journey, Dodge Caliber, and Jeep Compass are available, but Chrysler LLC just doesn’t have the product line to retool as quickly as Ford or GM.
Cerberus Capital Management is the owner of Chrysler, and although the company hasn’t stripped Chrysler as some had feared, they’re probably looking to flip the company as soon as an opportunity comes up.
Since Chrysler is now a private company, it is difficult to gauge just how bad the bleeding is right now. The company does have cash on hand but that money may not be able to sustain the company in a market where $4 per gallon is the norm. My thinking is that Chrysler will be racing through cash at a rate much faster than expected making it impossible for the company to tap cash to retool.
In my not so business analysis of the company I will say this — no suitor may be interested in Chrysler LLC in the position it finds itself in now. If gas prices should continue to rise, I expect that the only alternative for Chrysler will be bankruptcy, a once unthinkable option, but perhaps the only way Chrysler will survive apart from being purchased outright.
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