Thursday, October 23, 2008

Daimler: Chrysler worth nothing


Of Chrysler's future, Vice Chair Jim Press says: "Nobody

knows what's going to happen. It's all speculation."

Minority partner values its stake in company at $0


As Daimler AG sees it, Chrysler is worth nothing.The German automaker has depreciated its stake in Chrysler to zero from $268 million at the end of June, the company said Thursday. A little over a year ago, the company valued its 19.9% stake in Chrysler at $2.2 billion.

The announcement came as part of Daimler's quarterly financial release on a day when Consumer Reports scolded the Auburn Hills automaker's quality and Chrysler announced plant cuts that will halt hybrid vehicle production -- all as majority owner Cerberus Capital Management talks with General Motors Corp. about a merger that could result in 30,000 job cuts.

Chrysler indicated Thursday that it had a net loss of $662 million in the second quarter of this year, meaning the automaker and its financing arm, Chrysler Financial, lost more than $1 billion in the first half of the year. The bulk of the $662-million losses -- $572 million -- was attributed to the automotive business.

The Auburn Hills automaker announced it will close its Newark, Del., assembly plant a year earlier than expected and eliminate a shift at its Toledo North Assembly Plant, cutting 1,825 jobs between the two.

"The pain level must be extraordinary over there -- Cerberus and Chrysler and Daimler. You can just imagine how tortured they are," said Gerald Meyers, a University of Michigan business professor and former American Motors chairman.

Daimler officials said they continue to negotiate with Cerberus for the private equity firm to acquire its final stake in Chrysler.

Combined with previous statements, Thursday's announcement indicates that Chrysler's automotive and financing businesses lost $1.17 billion through the first half of the year. During the same time, Ford Motor Co. lost $8.6 billion while General Motors Corp. lost $18.7 billion.

Chrysler officials declined to elaborate on the statement about finances.

Chrysler has seen its sales drop at twice the rate of the U.S. industry, hard hit by the tough credit market and customers moving to more fuel-efficient vehicles. Since February 2007, the company has announced around 28,000 job cuts, the elimination of four products and taken out more than 1 million units of capacity.

Since Cerberus acquired majority control of Chrysler, the automaker's top executives have talked about their efforts to improve the quality of their vehicles, making Thursday's Consumer Reports comments even more stinging.

"In their new models that have come out, we have seen a decline" under Cerberus, said David Champion, senior director of Consumer Reports Auto Test Division. "Their biggest issue is trying to hold the vehicle together."

Beverly Thacker, a Chrysler spokeswoman, said the automaker is working toward improvement. "We do have pockets of success that demonstrates we can meet our customers' expectations," she said in a statement.

Chrysler gave the guidance on its second-quarter financial numbers in response to public filings Thursday by minority partner Daimler AG, which said it lost 351 million euros -- or $528 million using an average third-quarter exchange rate of $1.505 -- on its 19.9% stake of Chrysler.

Chrysler's results show up in a 3-month delay in Daimler's quarterly report. Overall, Daimler said it had a net profit of 213 million euros -- $321 million -- during the third quarter.

Since Chrysler became privately held and no longer required to make public its finances, it has disputed Daimler's quarterly reports saying how much the German automaker was losing on Chrysler. Chrysler officials say the figures are not accurate reflections of Chrysler's business because of the difference between International Financial Reporting Standards used by Daimler and the U.S. accounting standards used by Chrysler.

Chrysler issued a statement that said under U.S. standards, Daimler's losses would be 88 million euros -- or $132 million -- in the second quarter. While Chrysler does not say how much money it lost as a whole, simple math would say the automaker and its financing arm lost $662 million.

As Daimler sees things, its loss of $528 million on its stake of Chrysler would indicate that Chrysler as a whole lost $2.6 billion under Daimler's accounting. Similarly, Daimler's stake of Chrysler lost $585 million during the first quarter, implying Chrysler as a whole lost $2.9 billion.

Chrysler's adjustment attributes $257 million of the difference between its and Daimler's numbers to the differences between accounting standards. In addition, Chrysler said $196 million was attributed to Daimler adjustments not related to Chrysler.

Chrysler issued a similar clarification in July that indicated Chrysler and its financial arm lost $509 million during the first quarter of this year.

Then in August, Chrysler executives said the automaker had $11.7 billion in cash and marketable securities on hand at the end of June and that it earned $1.1 billion before interest, taxes, depreciation, amortization -- known as EBITDA -- and before restructuring charges during the first half.

It is Chrysler's supposed pile of cash that interests GM, which is burning through at least $1 billion a month. Several analysts caution the money may run out next year.

Knowing that GM is eyeing Chrysler's cash worries some. "They're marrying us for our money because we're rich, and to say that Chrysler is rich -- who ever thought GM would want to marry us because we're rich? We're rich in cash for the next 12 months, that's what we've got," a dealer told the Free Press.

Chrysler Vice Chairman Jim Press told the Free Press on Thursday that the current market is "really really tough" for its dealers, in part because of consumer fears that car loans are not available.

"Actually, I think there are a lot of sources of financing that local dealers can use. And we've got a half a billion dollars of incentive money in the market," he added, referring to Chrysler's budget for spending on incentives in October, November and December.

As for the industry buzz that Chrysler might be sold or merged, Press said, "Nobody knows what's going to happen. It's all speculation, and if you're going to assume the worst and go fetal, then what good things can happen?"

1 comment:

Anonymous said...

If Diamler is CLAIMING that thier stake in Chrysler is only worth $2.2 Billion; Cerberus needs to give them the money and hold 100% equity in the company; tell GM to fend for themselves.
Apparently Cerberus knows how to run an auto manufacturer, as Chrysler currently has money built back up that Diamler had previously bled off of them.
Cerberus would be fools to give GM money & Chrysler for anything.