Chrysler Buyer: It’s Up to the Unions
April 10, 2007

Chrysler’s unions, in one way or another, will be the deciding factor in who ultimately buys the Chrysler Group.

It’ll come down to what deal is most palatable to them, and how well they’ll cooperate with -– or aggressively they’ll protest –- a potential buyer.

Of the offers now on the table, the deal likely to be most favored by Chrysler unions is an offer from Canadian auto supplier Magna International with private equity firm Ripplewood.

In contrast, a bid by Cerberus Capital Management ranks at the bottom with Chrysler’s unions, because the union suspects Cerberus intends to break it into pieces and strip it down to nothing more than a distribution company.

“Cerberus is a Trojan horse for Chinese automakers, and the unions know it,” said a source familiar with some of the bids. 

Still, wild cards remain. The wildest card is the recent bid from Las Vegas billionaire Kirk Kerkorian and his Tracinda Corp. The innovative deal offers unions a stake in Chrysler and a future. Kerkorian claims Chrysler can be “a robust and lasting standalone entity,” and his Tracinda is in it for the long haul. Published reports put Kerkorian’s offered stake to the unions at 10 percent, but a source says Kerkorian is rumored to be willing to go as high as 20 percent. 

Blackstone looks like the dark horse, with little known about its intent and its offer. Korean automaker Hyundai, despite its vehement denials, is said to be interested in Chrysler’s distribution network as are Cerberus and the Chinese.

An 11th hour rescue/defensive move from General Motors can’t be ruled out. Despite trepidation that a purchase would distract it from its own turnaround efforts, a GM-Chrysler combo would consolidate GM’s power base with the unions, with which it is negotiating new national contracts this year. In addition, GM doesn’t want Chinese or Korean automakers to latch onto Chrysler’s dealer network.

Magna, which operates non-union shops, is none too popular with the unions. Still, Magna clearly has stated its intention for the past couple decades of its desire to expand its vehicle assembly capability. Its clear intentions may ultimately win over the unions.

Of critical importance is the support of the Canadian Auto Workers union, since Chrysler has significant operations in Canada, including a plant that produces its all-important minivans and another that makes the popular Chrysler 300 and its Dodge stablemates, the Charger and Magnum. The CAW might be friendlier to a deal by a local company.

In contrast, the unions are rightfully suspicious of Cerberus’ intentions. Cerberus looks like it is building a vertically integrated automotive enterprise.

With Chrysler, it is believed that Cerberus’ plan is to sell off assets, notably Jeep, and retain the dealer network to distribute vehicles from China. Cerberus apparently believes it can make back 50 to 70 percent of its investment in a year, but the results would be devastating.

“Cerberus has no interest in making cars in the North America and no interest in employing Americans. It wants a conduit to sell 300,000 to 400,000 Chinese cars a year,” says a source.

Indeed, Cerberus has the makings of a full-fledged auto company.

It has the management. Former Ford executive David Thursfield heads its automotive unit. Also brought into the fold of late have been former Chrysler/Volkswagen executive Wolfgang Bernhard and retired Ford exec Robert Rewey, who specialized in sales and marketing.

It has the parts-making capacity. Cerberus is buying bankrupt auto supplier Tower Automotive Inc. It is part of a group planning an investment in bankrupt Delphi Corp., and it bought pieces of bankrupt auto supplier Collins & Aikman. Those investments would give Cerberus parts-making capabilities.

It has financing capabilities. Cerberus also led a consortium of investors that bought 51 percent of General Motors Acceptance Corp.

How ironic if GM’s finance arm were to support its competitors –- the dealers and buyers of Chinese automobiles in the U.S.

Posted by Michelle Krebs at 9:41 AM under Analysis , Business , Chrysler , Commentary , Featured , Rumors | Comments (0) | digg this | Seed Newsvine