[angelina1982]

Kerkorian bid could be good for Chrysler
Transaction addresses some key issues facing troubled carmaker
CNBC VIDEO


• Good news for Chrysler?
April 5: CNBC's Phil LeBeau takes a look at billionaire investor Kirk Kerkorian's offer to buy struggling U.S. automaker Chrysler.
CNBC


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ANALYSIS
By Roland Jones
Associate editor
MSNBC
Updated: 7:07 p.m. ET April 5, 2007


Roland Jones
Associate editor

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News that billionaire investor Kirk Kerkorian is prepared to pay $4.5 billion for Chrysler pushed the troubled U.S. automaker’s stock price to its highest point since July Thursday. Such a transaction, if it were to come to pass, could also have a positive effect on the world’s fifth-largest automaker, analysts say.

Tracinda is the first suitor to publicly confirm its interest in the U.S. subsidiary of Germany’s DaimlerChrysler, which has struggled in recent years as American buyers have flocked to more fuel-efficient vehicles and the U.S. automaker’s product mix has relied too heavily on sales of more profitable, but less fuel efficient, sport utility vehicles and pickup trucks.

On Feb. 14 this year, in an effort to revive its fortunes, Chrysler announced plans to cut about 13,000 workers — 16 percent of its North American work force — over the next three years to return its U.S. operations to profitability by 2008, following similar shake-ups at U.S. rivals General Motors and Ford. Chrysler also indicated that a sale of the Chrysler unit was under consideration.

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Since then, rumors have swirled swirling around Detroit about possible buyers of the Auburn Hills, Michigan-based Chrysler, including rival General Motors and Canadian auto-parts supplier Magna International, which has reportedly submitted a bid to buy the business for as much as $4.7 billion. Sources close to the situation have told Reuters that private equity groups Cerberus Capital Management and Blackstone Group are possible candidates to take over Chrysler.

Kerkorian’s offer, which was outlined in a letter to DaimlerChrysler’s supervisory board, may be the most enticing for Chrysler according to George Magliano, director of automotive industry research for the Americas at Global Insight, as it is contingent on Chrysler working out a favorable labor contract with the United Auto Workers union and offers the UAW and Chrysler management the opportunity to participate as equity partners in the deal.


Rogelio Solis / AP
A deal would put Kirk Kerkorian in charge of Chrysler a decade after he claims he was tricked out of a potential billions of dollars in the 1998 deal in which Germany's DaimlerBenz combined with Chrysler.
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“This offer a real blockbuster move — it has a lot going for it,” Magliano told CNBC, noting that Kerkorian has shown he is interested in keeping Chrysler running for the long haul and isn’t interested in breaking the company up into parts, which many have speculated would be the motive of private equity investors.

“He’s trying to get the union involved and the thing is contingent on, I assume, give-backs from the union — that’s the hidden kicker,” he added. “So it’s a very attractive offer and it really has a lot of momentum going for it right now.”

In a letter to DaimlerChrysler’s Chairman Dieter Zetsche, Kerkorian aide Jerry York said Tracinda plans to take a “very long term approach to solving Chrysler’s problems,” ignoring the company’s financial results over an initial five, six or seven year period “it will likely take to build Chrysler into a robust and lasting, stand-alone entity.”

The letter also said Tracinda would offer a substantial portion of equity in the company to the UAW as part of finding a solution to high healthcare costs, which is one of the biggest problems big U.S. automakers like Chrysler, General Motors and Ford face, as they are locked into contracts that force them to pay for healthcare for employees, retirees and their dependents — a cost that adds some $1,000 to the cost of every car they make.


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A deal with the UAW union would be a revolutionary move for Kerkorian and the automotive industry, observers say. There are good examples of unions working with company management, most notably in the airline industry, where pilots and flight attendants have helped their employers avoid bankruptcy by agreeing to wage concessions, but such a move has never been seen in the automotive industry, which faces similar problems.

Tracinda told CNBC Thursday that there is “genuine interest in the leadership of the UAW about an equity stake in Chrysler.”

A deal with the UAW could be difficult for Kerkorian to pull off because of his turbulent history with Chrysler and the size of the company’s large legacy costs noted David Healy, an analyst with Burnham Securities.

CONTINUED: “I’m not sure what Kirk brings to the party"
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[Kingsnkali]

The Big 3 have way too much overhead in the form of legacy pension and health care costs.

The companies and union need to look at pay, pension plans and health care and trim them back. And the cuts shouldn't just be on current and future employees. Retired people must be involved as well. The costs are in the multi billions and these auto makers are losing market share year after year. They will go belly up if current projections continue on the same path to ruin.

No one likes to see cuts or no increases in pay, pensions or health care. However, cuts are better than insolvency and nothing.

Pay, benefits etc. for management and labor HAS to be tied to sales, productivity, and quality. Increased sales means increased money for all. When you put management and labor on the same team - good things happen.

I don't see the UAW getting on board here though. They will fight closing obsolete plants. They will fight any cuts. They will fight increased automation and fewer union jobs. They will fight until Toyota, Honda etc. take over the entire US market...

[Angel Bear]

I'm not feeling the price Kirk put up...$4.5 Billion for Chrysler is not enough it seems. So, I take it that the bid is just for the auto group and not Chrysler Financial and Mopar?

[UpperPeninsulaRon]

Originally Posted by Kingsnkali

The Big 3 have way too much overhead in the form of legacy pension and health care costs.

The companies and union need to look at pay, pension plans and health care and trim them back. And the cuts shouldn't just be on current and future employees. Retired people must be involved as well. The costs are in the multi billions and these auto makers are losing market share year after year. They will go belly up if current projections continue on the same path to ruin.

No one likes to see cuts or no increases in pay, pensions or health care. However, cuts are better than insolvency and nothing.

Pay, benefits etc. for management and labor HAS to be tied to sales, productivity, and quality. Increased sales means increased money for all. When you put management and labor on the same team - good things happen.

I don't see the UAW getting on board here though. They will fight closing obsolete plants. They will fight any cuts. They will fight increased automation and fewer union jobs. They will fight until Toyota, Honda etc. take over the entire US market...

Not a bad idea, but here in Michigan we must go much deeper than that. Let us look at government health care and pensions. For example, teachers are pretty smug about the excellent health care they receive as well as the pensions. In other area of government, state employees rate very well in overall benefits but there never seems to be talks about cuts there even though the Governor emphatically states that cuts alone will not be the answer - there must be new taxes - to help pay for the bloated employee benefits of the state.