What can happen with Chrysler?

With all the gossip and speculation about the fate of Chrysler, I thought I would wrap up the various options available and give some insight as to what might make sense;

1) GM buying Chrysler – Under better times, this might not be such a bad idea, however, with GM bleeding cash, and still running their plants and dealer network inefficiently, the value of Chrysler would degrade to the point that the brand won’t be worth much when all is said and done. All you have to do is look what GM has done with the Buick brand, and eventually Chrysler will follow the same fate. I can’t see this deal happening. Odds – 10 to 1

2) Chinese buying Chrysler – With the deals being done overseas with the Big 3, this isn’t such a big stretch as one might think. With Buick being one of the top brands in China, Chrysler is a comparable line that would give Buick a run for the money, and immediately give Chrysler a presence in a developing market. However, given the Chinese reputation on manufacturing, the perception of quality will suffer, and will more than likely give Chrysler a big stumbling block in getting back to profitability, at least in the lucrative North American market. Chrysler might have to sacrifice more at home, in order to come back to life, under Chinese ownership. Odds – 3 to 1

3) Private Equity buying Chrysler – There are a few schools of thought on this one. PE firms have a knack for picking value, and can move in to make operations more efficient. However, the stumbling block with PE firms getting in on the action will be the reaction from the unions. Unions will find it hard pressed to concede on their contracts when they know that a PE firm is interested, with PE firms having deep pockets. Depending on the current contract, and vetoing power of the union on any sale, this might prove a more difficult task. It sounds like this would be the best option for Chrysler, but the union will be a big hurdle in letting this kind of deal go through. Odds – 12 to 1

4) Magna International buying Chrysler – Speculation around Magna buying Chrysler is dependent on how the industry perceives Magna’s current role. Magna is currently contracted to build cars for competitors, and its low cost structure is not conducive to the current union at Chrysler. Also, Magna has not been in the habit of making large gambles in the auto industry, or take on debt loads of this magnitude. Although speculation is that Bernhard would head up a Magna-purchased Chrysler, he would have a tough time with the union, in order to cut the costs required to get Chrysler back in the black. Odds – 7 to 1

5) Renault-Nissan buying Chrysler – Nissan has run into a rough spot the last 6 months, and isn’t in a position to take on Chrysler within its organization to make it work. Although a North American presence for Nissan would be a benefit, integrating Chrysler would be too great a risk at this time. Ghosn has worked miracles before, but this wouldn’t be one that he could pull off. Fix the problems within, before you go out on a buying spree. The logistics of integrating Chrysler with Nissan wouldn’t produce the needed synergies within a respectable time frame to make it financially feasible on Nissan’s balance sheet. Odds – 10 to 1

6) Management buyout of Chrysler – With Chrysler’s balance sheet and debt, this is one of the long shots of the bunch. It won’t happen. Even if management could get the financing, it’s a high risk investment that even the most renegade funds wouldn’t want to underwrite. Union concessions on healthcare liabilities and other costs would be required. Again, financing backed by equity funds would prove hard to get concessions with their deep pockets. Odds – 30 to 1

7) Hyundai buying Chrysler – What better way to improve an existing weak presence in North America than to vault a few spaces with the purchase of a competitor? Hyundai has the structure that mirrors Toyota, and has gotten a raw deal with their cars in the past. However, Hyundai has made progress in quality and styling, along the same lines as Chrysler (check out the Sonata or the Elantra). With Hyundai poised to gain greater acceptance in the marketplace, it may be cheaper for them to pick up Chrysler, and avoid some of the headaches and costs associated with building capacity in North America. Its current cost structure would give it a good bargaining position against the union later this year, and stand the best chance of gaining concessions from the union. Odds – 2 to 1

8) Status Quo – DaimlerChrysler has to do something to stop the bleeding. Could things be turned around within the company? I doubt it. Although Zetsche has maintained that he is a “Chrysler guy at heart”, continuing to lose money is not in the grand plan. Something has to be done, and although there is speculation that Daimler would get almost nothing for Chrysler, due to liabilities, a spin-off would be in the best interests for the other divisions. Odds – 20 to 1

9) Field – Any other options available to Chrysler will depend on the union’s interest in conceding on their contract, and what else Chrysler can do to stimulate waning interest in their cars. I can’t see the union making the first step to turn the division around; so much will depend on what the union will want. Given previous contracts and past negotiations, the union would have to step up to the plate and lead the concessions. This is a long shot at best. Odds – 50 to 1

My money would be on the Chinese or Hyundai.