Chrysler spinoff seen as likely option, analysts say

Reuters / February 15, 2007 - 10:00 am

FRANKFURT (Reuters) -- Spinning off the Chrysler group on the stock market may be easier and faster than finding someone to buy the loss-making North American arm of DaimlerChrysler, analysts said today.

Indian or Chinese carmakers eager to expand into the world's biggest car market might find Chrysler an attractive opportunity, and a handful of European carmakers could use some of its spare capacity.

But Chrysler's unionized workforce, unfunded health and pension liabilities, and hefty losses will make investors think twice about taking on any financial exposure, they said.

Analyst Christoph Stuermer at Global Insight suggested DaimlerChrysler could float up to a quarter of the Chrysler group, thus raising funds while winning back some of the U.S. investors who departed after the 1998 Chrysler merger with Daimler-Benz.

Arndt Ellinghorst at Dresdner Kleinwort envisaged nursing the Chrysler group back to health and then floating it with the goal of creating the kind of alliance that France's Renault SA has with separately listed Nissan Motor Co. Ltd.

In a research note, Dresdner said separating Chrysler from its German parent seemed possible because the official German document for reporting the legal obligations of DaimlerChrysler AG makes no mention of Chrysler's health care liabilities.

"The absence of Chrysler's 15.8 billion euros ($20.78 billion) in unfunded health care obligations would thus not weigh on Daimler post a de-merger. We believe the remaining 2.6 billion euros ($3.42 billion) pension obligations would not hinder a de-merger decision," it added.

One investment banker who follows the auto sector closely named Volkswagen, Renault, PSA/Peugeot-Citroen and Fiat as likely partners for the Chrysler group.

"There are lots of synergies with Chrysler given no U.S. presence and not much product overlap," he said. "Daimler could keep a share of 30 to 51 percent and the other manufacturer have between 25 and 70 percent. You could even involve private equity."

But Carlos Ghosn, CEO of Renault and Nissan, has lost much of his appetite for a U.S. partner after talks on an alliance with General Motors fell apart.

"The focus of management at Renault and Nissan is on restoring profits and as long as performance has not taken off I think it would be dangerous to extend the alliance," he told reporters this month.

Fiat declined comment.

Morgan Stanley analysts pointed out in a research note that the Chrysler group had a lot to offer, including flexible manufacturing capacity, three brands including the Jeep, purchasing scale, distribution, technology, and leadership in key segments such as minivans and pickups.

"There happens to be a queue of companies that could use some of this capacity on a plant-by-plant basis," they said, citing China's Chery, VW, Renault and Nissan.