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February 17, 2007

DaimlerChrysler: Dr. Z's New Vision

The News:
This Wednesday, DaimlerChrysler's Dieter Zetsche announced that the auto maker would be slashing 13,000 jobs and be closing one plant. This is yet another big hit to the struggling US auto industry. Press releases have hinted at a possible spin off of the ailing Chrysler unit, and recent reports have suggested that DaimlerChrysler and GM are currently in talks. These announcements have lead to a near 15% increase in DaimlerChrysler (DCX) shares.

My Take:
I think that the strategy that DaimlerChrysler is proposing to cut costs is a fantastic idea. Cutting workforce and output will go a long way to decreasing their growing inventories which simply are not selling. As far as Daimler-Benz is concerned, the spin-off of the Chrysler wing is a best case scenario. It will give the high quality luxury car company a great cash injection. I would say though this this is not the time to buy into the stock. I would wait for a pretty good pull-back to load up on it if I were to buy any at all. The real trade here I think is to short GM.

GM buying Chrysler would simply be a terrible idea. They would just crank out the same old uninspired run of the mill junk, and Americans would just end up with 3 more brands (Chrysler, Dodge and Jeep) that are the same car with a different exterior. Never mind the fact that GM cannot even fix its own problems. GM's current loss of $16.95 per share, while significantly better than its former $18+ loss, is still nothing to be happy about. The thought of a company like GM taking on MORE debt to buy another money losing car company just seems absurd to me, and if the deal actually goes through GM then totally reeks of mis-management. The fact that reports like this have surfaced would make me dump my GM shares if I had any.

Now, I know what you're thinking. "Well if that is such a bad idea, that what do you think should happen big guy?" I would say this, and this would not only be the best case scenario for Chrysler, but for Ford and GM, too, Chrysler needs to be taken private. If there is anyone that can fix the problems of one of these ailing car companies it is the buy-out kings at all of these big money PE firms. Not only would this be more likely in my mind to save the ailing Chrysler, but it would leave a blueprint for GM and Ford to find their ways back to profitability. In any case, only time will tell.

Posted by jkill at February 17, 2007 07:41 PM


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