Daimler open to partial sale of Chrysler

By FT Reporters

Financial Times

Updated: 7:40 p.m. AKT Feb 14, 2007

DaimlerChrysler has opened the door to a total or partial sale of its Detroit-based Chrysler unit, acknowledging the shortcomings of one of the most ambitious transatlantic business mergers.

The German carmaker has hired JPMorgan to explore Chrysler's future.

"All options are on the table," said Dieter Zetsche, chairman. He declined to set a time frame for the review.

A person familiar with the matter said the options included an outright sale, spinning off Chrysler to shareholders or continuing with the recent integration between the Detroit company and the Mercedes car group. The latter is the least preferred course of action.

The restructuring marks Chrysler's third major turnround plan since Daimler-Benz bought the company in 1998.

Initial expectations of a global automotive powerhouse have given way to frustration over Chrysler's exposure to sport-utility vehicles, pick-up trucks and minivans at a time when US consumers have been moving to cars and crossover vehicles.

Chrysler also badly misjudged demand, leading to a big inventory build-up. It lost €1.1bn ($1.4bn) last year, offsetting a €2.4bn operating profit at Mercedes and a strong performance by the commercial truck group.

DaimlerChrysler reported total net income of €3.2bn, up 13 per cent from 2005, due partly to gains on its stake in EADS, the European aerospace group.

Chrysler is likely to report another loss this year, including a restructuring charge of up to €1bn. A drive to reduce inventories will cut operating profits by €230m.

The Chrysler review will take place along with a "recovery and transformation plan" that aims to restore the group to profit by next year. The plan includes 13,000 job losses in North America, 10-15 per cent fewer dealers and axing 10-20 per cent of Chrysler, Dodge and Jeep models.

Annual production capacity will shrink by 400,000 vehicles over the next two years, with the future focus on cars and other fuel-efficient vehicles.

Tom LaSorda, chief executive, said Chrysler needed to reduce its dependence on the North American market. "We need to leverage alliances and partnerships to quickly take advantage of emerging opportunities in new markets and new segments."

He cited a recent venture in which Dodge dealers in Mexico are selling a Dodge-branded vehicle built by South Korea's Hyundai.

Mr Zetsche said DaimlerChrysler's senior executives shared responsibility for Chrysler's current woes. "We are in this together", he said.

"This is not about finger-pointing."

Mr Zetsche added that the review of Chrysler's future would not affect existing co-operation between the Detroit group and Mercedes, with neither a disentangling of links nor any significant tightening.

Reporting by Bernard Simon in Auburn Hills, Michigan, John Reed and James Mackintosh in London, and Richard Milne in Frankfurt.