Daimler says all options open for Chrysler

Daimler says all options open for Chrysler
By John Reed in London and Richard Milne in Frankfurt
Copyright The Financial Times Limited 2007
Published: February 14 2007 12:00 | Last updated: February 14 2007 12:34



DaimlerChrysler is leaving all options on the table for its unprofitable Chrysler unit, the German-American carmaker said on Wednesday.

The dramatic announcement confirms long-running rumours that DaimlerChrysler is considering selling or otherwise spinning off Chrysler.

It comes ahead of the company’s annnouncement of a restructuring plan in Detroit in conjunction with its 2006 results.

The statement is likely further to unsettle workers awaiting the announcement of expected job cuts later today, and incur the anger of the United Autoworkers Union. Shares of DaimlerChrysler surged 4.8 per cent per cent to €51.60 on the news.

“Today the supervisory board will reach a decision on the board of management’s decision to restructure the Chrysler Group,” the company said in a statement on Wednesday morning. “The board of management intends to consider other, more far-reaching strategic options with partners in order to support and facilitate the programme,” it said.

“No option is being excluded in the interest of arriving at the best possible solutiion for the Chrysler Group and DaimlerChrysler as a whole.”

DaimlerChrysler is expected to announce the closure of US plants and elimination of at least 10,000 jobs later on Wednesday, when the company makes its annual results announcement in Detroit for the first time later on Wednesday.

The plan is expected to include plans to share more parts and systems between Mercedes-Benz and Chrysler, signalling further integration of the company’s two carmaking units.

However, in making Wednesday’s statement DaimlerChrysler has in effect admitted its failure to make Chrysler work on a sustainable business since buying the US carmaker in 1998.

The phrasing of the statement is similar to comments made by Bodo Uebber, Daimler’s chief financial officer, in October that were swiftly retracted.

It suggests there is considerable uncertainty and unease within the company as to how to proceed.

In practice, a public flotation or sale of Chrysler to strategic investors would prove difficult because of health-care and pension liability costs on its books worth an estimated €20bn to €30bn, analysts said.

Instead, more focus in the short-term will likely be given to the restructuring plan to be announced later on Wednesday. Analysts said Daimler had to be careful to avoid threatening unions and workers too much that they would be demotivated in the necessary turnaround effort.

But investors are seen as accepting a big financial hit if Chrysler is got rid of and Daimler’s balance sheet is large enough to absorb such a large sum, even though the carmaker’s credit rating would be likely to suffer and the quality and quantity of its debt decline.

Daimler Chrysler’s bond prices rose on Wednesday. Traders saw the company’s announcement as positive for debt as Chrysler is a low margin business, making little in the way of profits.

The company’s main benchmark bonds, a 10-year due to mature in 2011 and a seven year due to mature in 2013, saw prices rise a touch while yields fell. The company’s five-year credit default swaps also fell, implying that investors think the company is less likely to default should it spin-off Chrysler. However, traders stressed prices were unlikely to move much further until the company announces its results at 2pm GMT.

Additional reporting by David Oakley