In race for Chrysler, investors may not win

PREV of NEXT

DaimlerChrysler (DCX) stock has gained 7 percent to $69.19 a share since it hinted Feb. 14 it may sell its ailing Chrysler Group. Yet while a sale would help DaimlerChrysler's bottom line, it won't do much near-term for the stock or its sector.

"Automakers are in a real pickle," says Jack Ablin, chief investment officer at Harris Private Bank, citing slumping demand, competition from Japanese automakers and soaring worker-benefits obligations. "It's like they're not in the auto business — they're in the pension and health-care business, and they just sell cars to fund that," he says.

Indeed, Chrysler Group — like GM and Ford — is laden with debt. Deutsche Bank analyst Rod Lache values Chrysler at $15 billion excluding debt. But its liabilities for worker pensions and health-care benefits total $18 billion. On that basis, he quips, DaimlerChrysler should theoretically pay a buyer $3 billion to take Chrysler off its hands.

"In Detroit, some homeowners with negative equity have been known to push their keys through the letterbox and vanish. DaimlerChrysler may be looking to seek a similar walk-away solution for Chrysler," says Citigroup analyst John Lawson, who rates Daimler a "hold."

Chrysler lost $1.475 billion in 2006 but its purchase price will likely be based on future results. Lawson predicts a profit by 2009.