Billionaire investor Kirk Kerkorian’s Tracinda Corp has made a $4.5 billion cash offer for the Chrysler Group. In a statement to the press, the company said it intends to “build and strengthen” the company and will try to make good with the UAW..
Tracinda says it will “offer the UAW and Chrysler management the opportunity to participate as equity partners in the transaction.”
There has been mounting pressure on DaimilerChrysler to sell the struggling Chrysler Group. At the New York Auto Show this week, DaimilerChrysler CEO Dieter Zetsche officially confirmed Chrysler is for sale.
The Tracinda offer is the third high-profile bid for the company, which consists of Chrysler, Dodge, and Jeep. General Motors is believed to have offered next to nothing for the group, and Canadian auto parts supplier has bid $4.7 billion. Analysts value Chrysler anywhere from nothing and $13 billion, depending on the buyer and other variables. Daimler-Benz paid $38 billion for the Chrysler Group in the 1990s.
Kerkorian and York back in the spotlight
Kirk Kerkorian and his aide Jerry York made headlines last summer when they initiated talks between General Motors and Renault-Nissan about an alliance. At its peak, Tracinda owned around 10 percent of General Motors. After the alliance talks fell apart, Tracinda sold its stake in General Motors, and Jerry York quit GM’s board of directors.
Letter to Dr. Zetsche
Mr. York sent a letter to Dr. Zetsche explaining his intentions:
Dear Dr. Zetsche:
I had the chance to meet you briefly at Gary Valade’s retirement party in early 2004, and enjoyed our chat at the time, on Toyota pricing as I recall. Of course the several hundred in attendance at that event were in high spirits, as the impact of Chrysler’s early 2000’s turn around plan was beginning to exhibit remarkable results.
But of course this was three years ago, when gasoline prices were still below $2.00 per gallon in the US, and before three more years of rampant healthcare inflation had taken place.
As Tracinda’s letter to DaimlerChrysler’s Supervisory Board suggests, we have been following Chrysler closely and studying publicly available materials. And having been a major shareholder for over a decade we are very familiar with both Chrysler and the automotive industry, and have come to believe, all factors considered, that a private ownership approach is in the best interests of all Chrysler constituencies.
The right (meaning exceptionally patient) private ownership can do things that are difficult for both public companies and the wrong (meaning not so patient) private ownership, specifically:
- 1. Take a very long term approach to solving Chrysler’s problems without worrying about “EPS results” for the initial five, six or seven year period it will likely take to build Chrysler into a robust and lasting, stand-alone entity.
- 2. Offer a substantial portion of equity in the company to the UAW as part of finding a solution to ever-rising healthcare costs, which not only are unaffordable by corporations, but over time will likely prove to be unaffordable by governmental entities as well.
Regarding the first point, the necessary investments will have to be made in product development and manufacturing to [a] get Chrysler on a product renewal cycle that is fully competitive with the Asian producers in terms of newness, [b] shift the product mix towards “greener” segments, and [c] get product quality to the levels necessary to eliminate this as a bias in consumers minds towards purchasing Asian products.
The returns will not come quickly. Investors that feel the need to show “mark to market” results in their funds in relatively short time frames (just a few years) will not be willing to invest as necessary over an unusually lengthy period of time to achieve the necessary end results.
Long term, patient investing has been Tracinda’s approach. Aside from its decade-plus investment in Chrysler, it was the controlling shareholder of Metro-Goldwyn-Mayer for eight years from 1996 to 2004, and built the company through film library acquisitions into a public company worth two and a half times its acquisition cost in 1996. And more notably, Tracinda has been the controlling shareholder of MGM Mirage (originally MGM Grand) for twenty years—having built it into a public company with a market capitalization of nearly $21 billion today.
That is what we believe all the Chrysler constituencies need. Not a “quick fix,” that may show good results three or so years from now, only to have the company possibly slip into another crisis situation. But a lasting fix that builds on the fundamental requirements in the automotive industry of product newness and quality, and in the process provides returns not only to the investors, but to the employees as well through their ownership stake.
Accordingly, I hope that you and the Supervisory Board will carefully consider the proposal made today by Tracinda Corporation.
Sincerely,
Jerome B. York
04/05, 1:09 PM
posted by:
Stuart
Put this and the 5 dollar a gallon price together and the future ain’t looking too good for chrysler
04/05, 1:10 PM
posted by:
golf4me
It was only a matter of time before Kirky showed up in this…and this is probably the most acceptable solution for the UAW/CAW. This will get very interesting in a couple of months…
04/05, 1:29 PM
posted by:
car-a-holic
Is he a nut job though? he seems oportunistic to a possibly damaging degree. he might have some good ideas…but if his history of suggestions like a merger with Renault/ Nissan and GM are considered…..he seems like really curious if not possibly disconnected loose cannon…..
04/05, 1:33 PM
posted by:
CTS DRIVER
very interesting, i would rather see him in a chrylser/nissan/renault alliance than selling to the chineese.
04/05, 1:36 PM
posted by:
gbb
Beats me how the Chrysler deal will come out.
I can tell you about the $5.00 gas. If it gets that high, you will buy it and go on about your buisness. We got no choice now do we? Maybe it will get some of the assholes in the little beaters off the road.
04/05, 2:09 PM
posted by:
maximus
a fool and his money are soon parted?
04/05, 2:48 PM
posted by:
roadmaster96
HE was bad for Gm and will be bad for Chrysler. Maybe Blackwell is the best hope. As long as they don’t touch the 300c and Challenger I see no problem. BTW, very few cars out there get “bad” fuel economy. Its only all the late 90’s and early 2000s SUVs and pickups rolling around. Cars like the Corvette, mustang, 300C, upcoming camaro and WRX’s get 18 mpg in the city and mid to high teens on the highway. If you think that’s bad you’re either very poor or a hard core environmentalist. You wouldn’t be in the market for these cars regardless of fuel prices.
04/05, 3:20 PM
posted by:
young insight
Ian McKellan (on crack) is buying chrysler?!
04/05, 3:22 PM
posted by:
roadmaster96
European V6’s and V8s devour fuel compared to American and Japanese ones. the only reason fuel economy in Europe is so high is because of DIESELS.
04/05, 4:04 PM
posted by:
Madcapp
I’m sure this makes perfect sense to Kerkorian…he looks like the average Chrysler customer.
04/05, 4:18 PM
posted by:
F451
Kerkorian is a savvy investor who can make things happen. This should royally piss-off GM since Kerkorian is willing to sit at the table with the unions this will lessen GM’s chances—great power play. Kerkorian terms are interesting regarding the initial offer period.
04/05, 7:20 PM
posted by:
Random Jerk
Would all of LLN’s resident racist be happier if the Koreans or Chinese put a bid in?
04/05, 7:47 PM
posted by:
rerone
Kirk is probably the best choice for all concerned. Forget gas prices. You people must be very young. Adjusted for inflation, assuming you know what that means, gas is near an historic low. We were just spoiled for all those years with gas at 1.15-1.30. Fact is my 2005 320 hp Caddy gets 15.5 mpg in the city the same as my 1984 130hp Caddy got 22 years ago. I’m sorry, but that is progress.
04/05, 9:42 PM
posted by:
meekin111
not enough progress
04/05, 9:58 PM
posted by:
0GSharK6
Not much of a progress in gas mileage, but that’s a huge progress in efficiency. They take that and apply all the technology of that to a 130hp engine today and you get Honda/Toyota mileage.
04/06, 9:37 AM
posted by:
anyclearer
roadmaster, b you are mistaken if you think 18mpg is good …or even close to being good. And either you have to be poor or and envirmentalist? i am neither and i disagree. 18mph might have been good in the 70’s but today, mpg should have gone up.
04/06, 11:24 AM
posted by:
Blakkarr
What we need is a company with a clean slate and a very clear and obvious goal. Maybe letting Chrysler die may not be a such a bad deal. But I can see, someone resetting Chrysler to meet new better goals, not just making money.
Okay enough dreaming. If Kerkorian can get ‘er done, then let him. Either that or DR.Z sucks it up and really works on making DCX actually work.
04/06, 11:32 AM
posted by:
Madcapp
That dude is old and ugly, and I don’t want to look at him all weekend. Can we get a new story at the top, maybe some new pictures of the BMW 1 series convertible?
04/06, 1:06 PM
posted by:
Captain Spadaro
Why does Kerkorian think he’s still important?
04/06, 1:10 PM
posted by:
S-60-driver
Oh my god!!!! I need some NEW posts from LLN!!!! Good Friday is not that big of deal to skip work!!! GOD!!!
04/06, 2:21 PM
posted by:
Ricardo Head
Kirky-baby is such a car guy. He’s the perfect expert to run Chrysler.
04/06, 2:27 PM
posted by:
Jackson
Adios Chrysler and good riddance. Who needs **** like the Caliber anyway?
Kirk is gonna find out that you need decent product to make money.
Daimler-Benz you rock, amputate the diseased limb.
04/06, 11:27 PM
posted by:
Rene Curry
Kirk is savvy investor, however when is enough money enough! At his age he is still hard working. Maybe this is more of a legacy thing for him ????
04/07, 10:53 AM
posted by:
golf4me
Why doesn’t the UAW buy Chrysler. Then, they could pay themselves whatever they want, have all the benefits they want, have a place for all their laid off brethren to go, and they can reap any rewards they might earn if they turn the thing around. Employee owned companies usually fare pretty well.
04/07, 11:30 AM
posted by:
europerspective
reron,
its great that you get the same economy despite 250% increase in power. Now imagine what economy you’d be getting if you were motivated to buy a lighter car – one that didn’t need 250% more power than its 1984 equivalent.
04/07, 10:42 PM
posted by:
Menace
Kirk should buy Chrysler, dump the union, revamp the product line, and make this a lean, fighting company. To be successful, Chrysler needs to deal with their quality problem first and formost…(transmissions that die at 60k and an electrical system with ghosts in the machine don’t cut it unless you build expensive German cars that perform and the owners accept the trade off). If Kirk hires a quality management expert and copies how Honda/Toyota manage their production of vehicles around quality…he may win. I hope he gets a chance, the companies dying where it is.
04/09, 6:57 AM
posted by:
Get Real
He is briliant or insane.
UAW pensions due at Chrysler are 20 BILLION dollars. That’s why Chrysler (and GM) are on paper: worthless.
He has a way out of the pensions, or he can pay it and make the company work.
04/09, 11:01 AM
posted by:
mujician
SOLD…. The question is, for how long?
04/09, 2:45 PM
posted by:
rerone
You know on second thought let a bankruptcy judge tell UAW and retirees why previous obligations will not be met. Then just start over clean slate. Hey I know, move production to China. That’s where it’s all going to windup anyway.