Analysts Raise Doubts Whether Restructured US Chrysler Can Be Profitable

15 May 2007 -- A day after Germany's Daimler sold its U.S. Chrysler division to a private equity firm in New York, there are doubts whether the U.S.-based company can return to profitability.

The end of the transatlantic marriage carries a big price tag for Stuttgart-based Daimler. It paid $36 billion for Chrysler in 1998. This week it sold 80 percent of Chrysler to Cerberus Capital Management for $7 billion.

Peter Morici, an auto industry analyst and business professor at the University of Maryland, says the Daimler Chrysler merger failed because Chrysler's production costs are too high. The high costs, he says, mainly result from overly generous health and retirement benefits paid to Chrysler's 50,000 employees who are members of the United Auto Workers Union. Morici says Chrysler loses $1,500 on every car it produces.

"As long as Daimler owned Chrysler the union could rely on the fact that Chrysler's losses were being covered by the larger company. Now there is no one else to cover those losses. If the union hangs tough and Chrysler runs out of money, then everyone loses their jobs," he said.

The autoworkers union has reluctantly embraced the Chrysler sale. Buzz Hargrove, the head of the UAW in Canada says there will no merger-related layoffs for at least 15 months. He says Chrysler's chief executive will work with the union to assure freer trade in automobiles. "These countries that are shipping into North America to sell won't allow us to sell in their markets. And he [the Chrysler CEO] is going to join with us to try to change that," he said. Hargrove spoke to Bloomberg television.

Auto industry analyst Morici says the traditional auto industry way of doing business is dead, a fact he says the union will not acknowledge.

"Quite simply [through cumbersome work rules] the union has the [US auto]companies tied up in knots. It is a make work program for the union itself and not the workers. And the union is destroying the industry," he said.

Cerberus Capital has a reputation of slashing costs and benefits and then selling off restructured companies. On Wall Street Tuesday the share prices of rival Ford and General Motors rose, on the assumption that the wage and benefit cuts the union may eventually give Chrysler will be replicated at Ford and GM.

Source: VOA News

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