Uncertain Road For Chrysler Group

April 20, 2007
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GRAND RAPIDS — Uncertainty surrounding the future of Chrysler Group has Van Andel-Flikkema owner John Flikkema III looking for a silver lining.

"I guess the good news is that there are people who are interested" in buying the Auburn Hills unit of DaimlerChrysler, said Flikkema, who recalls all too well days in the 1980s when former Chrysler CEO Lee Iacocca begged the federal government for a loan to save the company.

"Wouldn't it be wonderful if Chrysler could be an American company once again? A lot of people would agree," Flikkema said. "We were led along the primrose path with Daimler. It was portrayed as a merger, and it was a takeover."

Mercedes maker DaimlerChrysler of Germany is peddling Chrysler, which it acquired in 1998. But auto analyst Erich Merkle, director of forecasting for IRN Inc., an automotive consulting firm in Walker, said he wouldn't be surprised to wake up a year from now and find DaimlerChrysler intact.

"Daimler may still own Chrysler next year," Merkle said. "People are interested in Chrysler for a reason. Right now, it is considered distressed merchandise. Are things that bad at Chrysler? Not really, but the German shareholders haven't done themselves any justice. They've said they had to rid themselves of this junk heap."

"To me, that is a little bit of idiocy on their part," he added, because it is depressing the amount Chrysler's suitors have been willing to offer. Those suitors have included Blackstone Group, Centerbridge Capital Partners, Cerberus Capital Management, and parts supplier Magna International of Canada. Earlier this month, investor Kirk Kerkorian, whose previous dealings with Chrysler left some bad blood, offered a fire sale amount of $4.5 billion.

Merkle said DaimlerChrysler wants at least $8 billion.

Flikkema said that while Chrysler executives have not been forthcoming to dealers with details about the company's future, dealers have seen the game plan for recovery, and he's confident it will work, despite predictions that vehicle sales this year will lag behind 2006 by 250,000.

"Chrysler does have a business plan," Flikkema said. "I was invited back in September to Detroit for a half-day session, and it was all laid out. They know what they need to do, and as far as I can see, they're following that plan."

Merkle said he's heard that dealers are nervous because of the uncertainty about how decisions made in Stuttgardt will affect them. He said he is concerned about the impact that a deal with an equity group — which could flip the company in a short time for a quick profit — would have on the product pipeline.

"You lose any kind of strategic focus, any kind of product development focus," Merkle said. "I'm not worried about the next 18 to 24 months, but what happens to the product 26 to 48 months out? New product is the lifeblood of this market. If you don't have new product, the market will punish you, quickly and harshly."

Flikkema said consumers are likely to notice nothing. He said when Daimler took the reins at Chrysler, he noticed better vehicle quality. And consumers' biggest concern is warranties, which he said will be covered for 10 years, no matter Chrysler's fate.

But he said he thinks the number of dealers is going to keep shrinking.

"You don't really need as many dealers to sell (fewer) cars, and yes, that is going to happen through attrition or probably a merger," Flikkema said.

But Merkle said consumers may as well get comfortable while waiting for this next chapter of the Chrysler saga.

"It could drag out for a few months," Merkle said. "One of the big issues is with the (United Auto Workers). … They could be talking this time next year, and Daimler could still own Chrysler."     

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