Could Ghosn save Chrysler?

By David Welch

updated 4:17 p.m. ET Oct. 31, 2006

The car business is one of the few industries in which companies can go from being darlings to financial disasters in less than a year. This is especially true in Detroit. Chrysler made almost $1.5 billion last year but said last week that it lost that much in the third quarter.

It's gotten so bad that there are once again whisperings from Germany that parent DaimlerChrysler might even be thinking of spinning it off if they can't fix it again. One source close to Daimler management says that top executives are worried not only about Chrysler's heavy costs, but that its product lineup is completely out of step with what consumers want. Its sales are 70 percent trucks and minivans in a market where consumers remain gun-shy about buying SUVs, even as gasoline prices have fallen from their $3 a gallon summer high toward $2 a gallon.

So what's Daimler's German brain trust going to do? Right now the plan is to fix Chrysler. Chairman Dieter Zetsche did that job himself a few years ago when he ran the unit before taking over the top job on Jan. 1 and is confident he can do it again.

But on the earnings call last week, Chief Financial Officer Bodo Uebber did not rule out an eventual spin-off. German magazine Der Speigel reported that Daimler's supervisory board is mulling several exit scenarios.

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If Daimler gets to that point, the company may have an eager suitor. How about Renault-Nissan? Its overachieving chief executive officer, Carlos Ghosn, has been rebuffed by General Motors in his quest to add a North American carmaker to his alliance. Ford Motor says any alliance talks are on hold until new CEO Alan Mulally gets a chance to root through the company's problems.

A possible deal
But Chrysler could be available. There are no talks going on, but one high-level Renault executive says the idea has at least been casually pondered.

While a sale may not be in the cards, on paper at least the two companies marry up nicely. Chrysler lacks expertise in designing compacts and midsize cars, especially now that its joint development deal with Mitsubishi is kaput. Since Daimler doesn't play in those segments in Europe, Chrysler is really trying to compete with the likes of GM, Ford, the Japanese and Koreans, all of whom can spread development costs over global sales volume. Renault-Nissan is very good at making those models and has global scale.

The deal could make sense for Renault-Nissan, too, since Ghosn said in a call with analysts last week that he is still interested in a North American partner. Nissan has just 6 percent of the U.S. market, and its attempts to break into the full-size pickup, large SUV, and minivan segments have not done well. Those are Chrysler's strengths. Chrysler also has a presence in China—albeit a small one. But Renault-Nissan could use Chrysler's presence to build a distribution channel.

Alliance benefits
Making a complex merger like that work is another question. That's especially true now that Ghosn is still tinkering under the hood of Renault and Nissan. Given the problems at both companies, it's easy to question whether it's wise for Ghosn to try to either acquire or form an alliance with another automaker.

Still, it's clear someone in Boulogne is thinking about Chrysler. When presented with the benefits of pulling Chrysler into the fold, the Renault executive told BusinessWeek that some form of alliance with Chrysler makes business sense. Some analysts see advantages, too. "If you assume gas prices are not going to come down, it would make sense for Daimler to get someone on board to help Chrysler with small and medium-size car expertise," says Michael Raab, analyst at Sal. Oppenheim, a private bank in Frankfurt, Germany.

Daimler would have other options, as well. Two people close to Daimler say that forging an alliance to engineer passenger cars with Renault-Nissan, its French rival PSA, or Korean Hyundai also makes some sense.

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