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Hitting the Brakes at DaimlerChrysler; TI's Chip Bet Pays Off

August 08, 2000|JAMES PELTZ and MICHAEL HILTZIK

Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate merits of individual stocks.

DaimlerChrysler (DCX)

Jim: Don't buy

Mike: Don't buy

*

Mike: This is a company, Jim, whose story now appears to be, "It seemed like a good idea at the time."

Jim: No kidding. You're undoubtedly referring to November 1998, when the German company that makes Mercedes-Benz cars, Daimler-Benz, bought No. 3 U.S. car maker Chrysler for $36 billion.

Mike: It was the largest industrial merger up to that point.

Jim: When the merger was announced the two auto makers made it sound as if the new company was going to be the Mercedes-Benz of corporate efficiency, technology and global reach. Instead, what we have here is a rusted, beat-to-hell Plymouth.

Mike: Yeah, one of the remarkable facts about DaimlerChrysler is that the combined company's total stock market value today is less than Daimler's own market value before the merger.

Jim: Wall Street is so fed up with this company that the stock has plunged from about $100 a share at the time of the merger to the low $50s today, wiping out nearly $50 billion in market value. Its stockholders must feel like they were carjacked. From their standpoint, this has so far turned out to be one of the worst mergers in corporate history.

Mike: DaimlerChrysler's chairman, Juergen Schrempp, loves to go around saying that the stock market isn't giving his company enough credit for what it has done, and for all its great potential.

Jim: Please.

Mike: I look at this company and I see missteps that have mounted faster than the repair bills for my 1995 Chrysler minivan, which was the worst vehicle I've ever owned.

And that's not a random complaint--one of DaimlerChrysler's problems is that its Chrysler offerings are losing whatever luster they used to have. For one thing, their models are getting very long in the tooth. To move them off the lots, the company is resorting to rebates and other incentives, which are costing them plenty.

Now the question is: Will the new models Chrysler has in the pipeline rescue this company before the economic cycle turns down and many people stop buying cars?

Jim: The Chrysler side of DaimlerChrysler, as you say, is one of the biggest problems here. Just last week, in fact, Chrysler said its U.S. sales for July tumbled 21% from a year earlier. By contrast, those expensive Mercedes-Benz cars, with their fat profit margins, are still selling briskly.

Yet it's hard to see Chrysler mounting any sort of strategy to better challenge rivals General Motors and Ford.

Mike: Especially while the economy is still relatively strong.

Jim: Exactly.

Mike: Now, another reason Daimler bought Chrysler was to tap into what was supposed to be Chrysler's great technology. But was that ever really a tremendous asset for the company, given that Chrysler nearly went bankrupt in the late 1970s and was saved by only a huge U.S. government loan? I mean, how much could that technology be worth to Mercedes?

Jim: Another reason for the merger was to place Daimler in more segments of the global car market, not just the luxury corner.

Mike: But that broadened car line just means the company is selling Chryslers for less money with slimmer profit margins.

Jim: Right. Finally, Daimler expected to save huge sums--something like $3 billion a year--by eliminating overlapping overhead costs, boosting its purchasing power with suppliers and so forth. But that hasn't happened yet, either.

Mike: You're right, that was a big part of the pitch. But they've discovered that you can't really merge these two companies into one. It's like mixing chalk and cheese. One side speaks--guess what?--German, and the other side is as American as apple pie.

So now what they're talking about is extracting cost savings by cutting back on both ends. Great. That will give us a Chrysler where there are fewer people on the job, fewer happy executives and auto workers and, meanwhile, fewer people at Mercedes as well. This is a recipe for a car wreck.

Jim: It seems clear neither of us would buy this stock.

Mike: My Chrysler minivan was a crummy enough vehicle when it was new. The last thing I would contemplate is buying another one, especially with a stripped-down corporation behind it. So why would I want its stock?

Jim: I actually think Schrempp is a smart guy and might reach most of his goals some day. But not any time soon, and if you buy the stock you're going to fight the tape for a long time.

Mike: Looking at this stock's chart, I'll have to admit I'm sorely tempted to step in and buy the shares, because they've been beaten up so badly. But what terrifies me is that DaimlerChrysler is actually at the crest. If it can't move metal with rebates in what remains a generally strong car market, when will it?

And if the Federal Reserve isn't finished raising interest rates--and thus car loan rates--one wonders how much worse the sales picture could get for DaimlerChrysler.

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