The World Turns
Despite the sudden change in U.S. debt markets and underwriters being stuck with $10 billion of loans, the sale of Chrysler by DaimlerChrysler, its parent, is scheduled to occur this week. After 10 years of heartache, DaimlerChrysler has given up on its dream of creating a global car company and has decided to sell an 80.1 percent stake in its U.S. Chrysler unit to Cerberus Capital Management, a private equity firm, for $7.4 billion. This represents a substantial discount to the $36 billion which it paid for the company in 1998.
Founded by Walter Chrysler in 1925, Chrysler is an important part of U.S. automotive history. In 2006, Chrysler sold 2.7 million vehicles worldwide and had revenues of $62.2 billion. In every sense of the word, Chrysler is one of the largest and best known companies in the world, Yet, even at the steeply discounted price to which DaimlerChrysler agreed, many industry observers wonder how Cerberus plans to make it work.
Meanwhile, on the other side of the globe, Dongfeng Motor Group, one of China’s many truck and passenger car assemblers, is trading in the Hong Kong Stock Market at a $4.6 billion valuation, 50 percent of the current valuation for all of Chrysler. But Dongfeng, which does not have nearly the technological resources of a Chrysler, sold only 704,000 vehicles (26 percent of Chrysler’s unit sales) in 2006. While the 218,000 trucks which it sold are of its own design, the 486,000 passenger cars which it sold were produced in joint ventures with Nissan, PSA Citroen and Honda. And, Dongfeng’s total revenues in 2006 were $6.3 billion, only 10 percent of Chrysler’s.
Chrysler, a U.S. car company, is valued by equity investors at 15 percent of sales; Dongfeng, a China assembler is valued at almost 75 percent. While investors are lining up to buy shares of a Chinese car and truck company with little in the way of technology, the shares of one of the top players in the U.S. auto market, still the world’s largest, have to be given away at fire sale prices. One industry, two countries!