DaimlerChrysler's Dr. Z Sells in Market: Doron Levin (Correct)

By Doron Levin |March 2 (Bloomberg) -- Dr. Z, as DaimlerChrysler's AG chief executive officer is nicknamed in recent TV commercials, has a problem: He's trying to sell Chrysler, an automaker the world no longer needs.

It's a daunting task. The U.S. auto industry has excess capacity. Chrysler's vehicle lineup doesn't match Japanese competitors in the midsize- and small-car market. The automaker struggles with high labor costs and pension liabilities.

But DaimlerChrysler shareholders are forcing Dieter Zetsche to put Chrysler on the auction block, damaged as it is. The best hope may be to snag a buyer whose optimism exceeds its prudence, perhaps a private-equity fund that doesn't appreciate the brutality of the U.S. auto industry.

Zetsche's official position is that ``all options are open.'' The company says that a plan to shrink manufacturing capacity and slice 13,000 jobs might get Chrysler back in shape.

But Zetsche's lieutenants in Auburn Hills, Michigan, where Chrysler is based, suggest that the mustachioed CEO may as well start dressing in a yellow Century 21 jacket, so obvious is the eagerness at headquarters in Stuttgart, Germany, to dispose of the American property.

Sell is the right thing to do -- if possible: DaimlerChrysler since buying Chrysler eight years ago in a $36 billion stock deal has found that the U.S. automaker was in worse shape and more resistant to a turnaround than it first thought.

Unfixable

Zetsche and others on both sides of the Atlantic gamely struggled to repair Chrysler, to no avail. Others had tried before; a permanent fix always proved elusive.

After flirting with bankruptcy in the early 1980s, Chrysler managed to bounce back in mid-decade -- only to stumble backward again in the early 1990s. By 1998, when Daimler-Benz came knocking, Chrysler was profitable. But its pipeline of future models was meager, its executives squabbling among themselves for the next promotion.

Why Juergen Schrempp, then-chief executive of Daimler-Benz, failed to recognize Chrysler's true condition, or its penchant for bad habits like building too many of the wrong vehicles, is a mystery. Perhaps he couldn't see how crowded the U.S. market had become.

General Motors Corp., Ford Motor Co. and Chrysler over the past year have announced capacity reductions through 2009 totaling 2.6 million units -- just 100,000 shy of the number Chrysler sold in 2006.

According to Global Insight Inc., an automotive forecaster based in Lexington, Massachusetts, North American vehicle production capacity stands at about 18 million units -- compared with a forecast annual sales demand of about 14.7 million North American-produced vehicles. The difference represents an automaker about the size of Chrysler.

Why Wonder?

Small wonder Chrysler and others automakers have trouble maintaining vehicle prices and avoiding profit-robbing discounts. Small wonder DaimlerChrysler shareholders want Zetsche to sell. But who would buy?

Assuming the greater-fool theory of investment remains intact, the possibility exists that a buyer might pay a decent price. DaimlerChrysler then could lick its wounds, change its name back to Daimler-Benz and return to the business of manufacturing premium -- and very profitable -- Mercedes automobiles.

Chrysler does have some valuable assets. The Jeep brand is a solid name with a loyal following. Chrysler's minivans still lead the pack in terms of sales. Dodge pickup trucks are profitable.

Whoever is interested in those assets also must be willing to accept a $15 billion -- mostly unfunded -- obligation to Chrysler retirees, as well as the requirement to bargain with the United Auto Workers union, which represents Chrysler's U.S. workers.

Price Limit

That likely puts a limit on the amount any buyer would pay, considering the cost of doing business with the UAW. GM, which must negotiate with the UAW in any event, is said to be considering an offer that will let it grab Chrysler's customers in the U.S. while assuming as few of Chrysler's liabilities as possible.

Magna International Inc., the Canadian auto parts supplier, may be in the hunt too, and its executives have declined to knock down analysts' reports saying as much. Magna builds vehicles for other automakers and 16 percent of its business is with Chrysler, so its interest in a possible acquisition might make sense.

Other shoppers might include Chinese automakers interested in all or part of Chrysler.

Visitors are scheduled to start reviewing Chrysler's operations within the week.

The Point

The large number of shoppers doesn't obscure the main point: that an independent Chrysler building cars and trucks in the U.S., or even a Chrysler controlled by a non-U.S. owner, probably is a non-starter. That's a tragedy for tens of thousands Chrysler workers who will lose their jobs, not too mention the parts suppliers sure to be hurt.

Chrysler's fall is the expected outcome for an automaker that has stumbled too many times. Ambitious newcomers from Asia and Europe are only too anxious to step in as replacements.

If Chrysler does find a new owner, it will have to produce better results than Dr. Z & Co. -- or it won't be long before Jeep, Dodge and Chrysler will be names consigned mostly to automotive museums.

(Doron Levin is a Bloomberg News columnist. The opinions expressed are his own.)