Magna Cut

Magna Cut

Last Monday DaimlerChrysler and General Motors -- the world's largest automaker and producer of the popular GM cargo liners -- have engaged in an intensified talk about the possible linkup between Chrysler division and GM. According to reports from the Financial Times, DaimlerChrysler is considering taking a stake in Europe's largest automaker in exchange for its money-losing Chrysler unit.

The Financial Times, citing people familiar with the situation, said that DaimlerChrysler is weighing on the possibility of trading Chrysler for GM stake or to sell Chrysler to private-equity firms such as Blackstone Group, Apollo Management LP, Carlyle Group, and the Cerberus Capital Management. The four mentioned private-equity firms have refused to comment on the matter.

Likewise, DaimlerChrysler denied reports that it is still interested in keeping Chrysler and this was confirmed when DCX Chairman Dieter Zetsche said that all options for the Chrysler Group are now laid on the table and he further said that the possibility of a sale is not ruled out from the options.

It is no secret that General Motors is the world's largest automaker but despite its status as a global automotive power it has been losing market share in the US. And everybody knows that it is undergoing a massive restructuring that resulted to the closing of plants and cutting down of jobs. DaimlerChrysler is probably considering such facts before it decides on exchanging its Chrysler for GM stake.

Last Monday, a newspaper has also reported on its website that the Chairman of the Magna International Inc. had a meeting with two of the largest unions at Chrysler to discuss solutions on how to help the automaker surpass its current crisis. The meeting that transpired between Magna Chairman Frank Stonach and union leaders has become a rumor circulating through the auto industry. According to some sources familiar with the situation, Magna plans to takeover Chrysler in exchange to make the Canadian auto parts giant into a full-fledged automaker. DaimlerChrysler has not yet given any comment on this report.

A Senior Chrysler official last Friday told The Associated Press that the company is going to supply detailed financial information to some of their selected potential buyers and is working in partnership with its investment bank the J.P. Morgan Chase & Co. to avoid divulging sensitive information.

Meanwhile, Russia's second biggest automotive company, the OAO Gaz Group has also expressed their non-interest on Chrysler after reports came out saying that they are interested in purchasing Chrysler-- allegedly reported by the German weekly magazine Focus. The magazine did not cite any sources according to GAZ which is supplied by Chrysler with four-cylinder engines for the Russian company's minivans and cars. Other automakers that have expressed their non-interest in Chrysler include Volkswagen AG, Renault-Nissan Auto Alliance and Hyundai Motor Co.

Most analysts think that an equity deal would benefit GM since a domestic tie-up would be much easier for Chrysler instead of a foreign buyout. "Since GM is short of cash, an equity deal would make sense if it is interested in Chrysler, and an equity valuation of Chrysler at, say, three billion euros or $3.94 billion USD would wind up giving DaimlerChrysler a 20 percent stake in GM," said Stephen Cheetham, a senior analyst with Sanford C. Bernstein Ltd. He also said that "this kind of deal has some face-saving potential for management, and we believe that from a shareholder perspective, 20 percent of a combined GM/Chrysler entity is preferable to owning Chrysler outright. However it does not give DaimlerChrysler a clean break from equity exposure to the troubled world of US domestic carmakers, and we would expect the presence of a GM stake to be an ongoing irritant in its relations with investors."

DCX shares increased by 0.3 percent to 53.93 euros or $70.83 in Frankfurt trading however the company's US shares fell by 13 cents to $70.79 in an early trading on the New York Stock Exchange as compared to GM shares which rose by 33 cents to $34.59.

Chrysler has earlier announced it's lost of $1.475 billion in 2006 and said that it expects losses to continue through 2007. On the other hand, its parent DaimlerChrysler has earned $4.26 billion in 2006. As part of the continuing losses that Chrysler is experiencing, the automaker will cut 13,000 jobs which include 11,000 production workers and 2,000 salaried employees. It has also announced the closure of one of its plant and additional layoffs at some of its other plants.

For more about your GM needs like GM cargo liners, visit your trusted on line source.

Noah Scott is a 30 year old native of New Jersey, writer, and car fan - having grown up with both parents being auto enthusiasts. He works for an automotive consultancy firm and regularly contributes articles to car magazines.

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