Automaker Investing: And again, Mopar is sold down the river
By Adam Lass
In this article
Daimler Benz is selling its 80% stake in Chrysler to the private equity group, Cerberus Group.
This is good news for Mercedes, as the two companies were always a bad fit.
GM, up temporarily on this news, is headed back to its 52-week lows.
Automaker Investing: And again, Mopar is sold down the river
But how will Chrysler sell cars without Dr. Z?
I am speaking (disingenuously of course), about the by-now infamous breakup of Chrysler and Daimler/Benz. For those of you who somehow managed to miss the news, Daimler is offing its beleaguered “MOPAR” shares onto the brave souls at Cerberus Group.
On the one hand, one can wonder as to why the Germans thought they could fare any better at managing the perennial loser. Talk about two different cultures with completely different goals in life.
The gap can be summed up in a single taillight lens on a car from 1964, to wit, my dad's Mercedes Model 200 (no letters!). This was not a high-end edition. Rather, it was created to serve for some million folks as a taxicab. We're talking a simple in-line four, four doors, a huge trunk, a bench seat in front and styling akin to the old Marathon Checker.
Automaker Investing: Built like a brick out-haus
Simple perhaps, but just as overengineered as any German luxury limousine. The aforementioned taillight, as we found when he was rear-ended in downtown D.C., cost 10 times that of a similar American auto.
Why? Because you couldn't buy one, at least not just the lens itself. Rather, the entire unit, glass, chrome, reflectors, brackets, et al, was a single unit permanently sealed against corrosion. Comes out whole, goes back in the same way.
Why use such a high-tech solution for such a pedestrian part on a rather plebian vehicle? Because when it comes to upfront cost, Mercedes just doesn't care. Better to spend more now, prevent problems later and pass that cost onto customers. Better yet, mark it up as a benefit! In the end, that car rolled over its odometer three times that I know of for a fact, and quite possibly is still running to this day.
Automaker Investing: Counting pennies while dropping dollars
Chrysler, on the other hand, has to worry about the cost of every little plastic screw and vinyl faux-wood dash panel insert. If it should accidentally spend a nickel more producing a Neon, Toyota will eat its lunch.
Wait a minute. Toyota is eating its lunch anyway. And so, after five years of million-dollar losses, Dieter Z. and crew are unloading the whole mess, hair-thin margins, polluted factories, swelling pension liabilities, and all onto a private American investor group, who, in a fit of hubris, feel that they know the magic stroke that will solve this Gordian puzzle.
If I could fathom a way to do it, I would suggest that you buy Daimler and short Cerberus Group. Failing that, I note that both Ford (F:NYSE) and General Motors (GM:NYSE) are up today on hopes that maybe, just maybe some white knight will come along with another billion or so and bail them out too.
Automaker Investing: No white knight coming this time
Perhaps this could happen for Ford. The Fords themselves are indeed rumored to be looking for someone to take the 2% or so that they actually own off their hands (it does come with 40% of the voting rights: woo hoo!).
GM, on the other hand, is just too big a pill to swallow. At more than $17 billion market cap, it cost too much, and its pension liabilities make for a rather unpalatable bolus. Indeed, I anticipate GM falling back to its 52-week lows over the summer, whereupon I strongly suspect that bankruptcy machinations will commence.
Share investors and bondholders will get screwed to the wall. But put option holders will suffer only from the cramps of their ear-to-ear grins.
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Adam Lass is the founder and manager of the WaveStrength Group, and is a contributing editor for Taipan Financial News. As the creator of WaveStrength's proprietary analysis system, Adam's expertise has shaped a franchise of successful investment newsletters and services, including WaveStrength Options Weekly and WaveStrength Apex.
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