Kerkorian sets the bar for bids
Kerkorian sets the bar for bids
His Chrysler plan calls for cooperating with unions and fixing the carmaker
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Kirk Kerkorian
Chrysler's road map?
Kirk Kerkorian's offer to purchase the Chrysler Group could show what other potential buyers might being considering, too. But the ideas proposed by Kerkorian's Tracinda Corp. would face hurdles, experts say:
Idea: Give unions an ownership stake in exchange for concessions.
Hurdles: Unions traditionally oppose giving up benefits. Canadian Auto Workers President Buzz Hargrove has pledged to fight Kerkorian's offer and those of other private equity bidders.
Idea: Speed up Chrysler's new-vehicle introductions.
Hurdles: It's easier said than done.
Idea: Improve the quality of Chrysler vehicles to better compete with Asian brands.
Hurdles: Chrysler and others have been working at this for years.
Idea: Shift product lineup to more so-called green vehicles.
Hurdles: Chrysler's truck-heavy lineup reflects American consumers' long-standing tastes. Some experts wonder whether smaller or hybrid cars can be made and sold profitably to U.S. consumers.
Idea: Patience to wait for Chrysler's turnaround.
Hurdles: Most successful turnarounds kick in quickly, if at all.
Kirk Kerkorian's $4.5-billion offer to buy the Chrysler Group does one thing no one else has done publicly: provide a strategy to fix the struggling U.S. automaker.
Auto industry observers say the ideas laid out, such as partnering with labor unions, make sense and other bidders, if they're smart, should propose some of the same things.
"That's the road map the other three players have probably laid out in a similar fashion," analyst Joseph Phillippi of AutoTrends Consulting said.What's unknown about the other bidders, especially the private equity groups, is whether they plan to keep Chrysler as one company and try to fix it or cut it up into pieces, selling the best parts for the highest price.
Top DaimlerChrysler officials met last week with interested parties about Chrysler, which lost $1.5 billion last year, but apparently excluded Kerkorian's Tracinda Corp.
Canadian auto supplier Magna International Inc. confirmed it is interested in Chrysler, and an analyst has said the company -- teamed with a private equity partner -- is offering as much as $4.7 billion.
A German newspaper reported that Magna executives will meet this week with DaimlerChrysler counterparts about Chrysler's future.
Private equity firms Blackstone Group and Cerberus Capital Management are also supposedly in the hunt, but those groups have not been commenting on their intentions.
Kerkorian, who has a storied past with Chrysler, is making the case that he is in it for the long haul, willing to invest in the business and wait five, six or seven years for Chrysler to turn around.
Kerkorian confidant and former Chrysler Chief Financial Officer Jerry York made that case in a letter to DaimlerChrysler Chairman Dieter Zetsche. The letter was made public last week.
York said private ownership would have advantages. "The right private ownership can do things that are difficult for both public companies and the wrong private ownership," York wrote, describing the difference between patience and impatience.
Most notably, Kerkorian has proposed an ownership stake for the UAW in exchange for concessions on the growing expense of health care.
In addition, York talked about "necessary investments" required for product development. He wrote that Chrysler needs to more quickly renew its product line, improve its quality and gear its product mix toward so-called greener segments.
"It sounds wonderful," said professor James Brock of the Farmer School of Business at Miami University in Ohio. "Sure those are things that would be very important to do, but the issue is and the question is ... are they going to actually be able to do anything along those lines?"
He added Kerkorian may be able to achieve those goals if he can gain the support of Chrysler's management and workers.
So far, Kerkorian hasn't been greeted with open arms. DaimlerChrysler executives in Germany purportedly do not look at his offer as favorably as others, in part because it is considered low.
"By stepping up and saying, 'Here's what we think needs to be done and here is what we would like to do,' they are hoping to get back into the mainstream because so far they've been shut out," Phillippi said.
Beyond the Jeep brand, Phillippi said there are few elements at Chrysler for a buyer to strip off and sell. "This is obviously a buy, fix and take it public in five to seven years," he said.
Gerald Meyers, University of Michigan business professor and former chairman of American Motors Corp., said the letter was likely a strategy by York to slow down the sales process and allow Tracinda a chance to enter the fray.
"They wanted to get it across that they are deep thinkers, that they are willing to approach the Chrysler problem in a broad, longer-range, thoughtful way," Meyers said.
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