2.26.2007

Let Chrysler Stand on Its Own

DaimlerChrysler wants to sell Chrysler, but anyone who would buy it should not buy it. What should DaimlerChrysler do?


            Before I address that question, let me explain the statement preceding it. Much of the media attention is focusing on the prospect of General Motors buying Chrysler. I haven’t found any commentator, analyst or other expert who thinks this is a good idea; quite the contrary, most people (myself included) think that one troubled company buying another is a terrible idea. The observation I like best comes from Jonathan Fahey, writing on Forbes.com, who says, “It's unclear how this plan would do anything positive for either company, or the U.S. auto industry.”


            Let’s assume for the moment that good sense will prevail and GM will not buy Chrysler. (A risky assumption, I know, but I like to be optimistic.) What then?


            Several major automakers have said they are not interested (good for them). I have seen speculation that some Chinese or Korean auto company might be interested, in order to gain an immediate presence in the U.S. market. I can understand why an Asian company might think that way. But this is also a bad idea.


            In some limited circumstances, a merger or acquisition can make sense. For example, one company might buy another to gain a complementary technology or business model it lacks. Microsoft has a long history of buying small companies for their technologies (although I think Microsoft has a long way to go in becoming a lean, well-run company). And the UPS takeover of Mailboxes gave it a retail presence it was missing.


            But merging simply to become bigger or grab a larger piece of the pie is rarely successful. (Can you say AOL-Time Warner?) Further, the Asian automakers that might do a deal with DaimlerChrysler generally lack the resources, management skill and, most important, lean track record that would allow them to successfully tackle the problems that still face Chrysler.


            I think it’s worthwhile to note that Toyota has never grown through acquisitions. When Toyota thought it necessary to add a brand to its portfolio, it created Lexus from scratch rather than buy another company. That doesn’t mean lean operators never buy other companies, but there have to be good strategic reasons for doing so beyond market share.


            I believe the best option is for DaimlerChrysler to spin off Chrysler into an independent company, or sell it to some new owners who simply want to run it independently – and not just because the original merger may have been a bad idea (which it may have been).


            Chrysler has made progress in the past in improving operations by adopting lean strategies, though it still has a long way to go. Being forced to stand on its own would not only intensify Chrysler’s burning platform for improvement, but it would also enable management to focus on improving the business rather than on making a merger or acquisition work – which can demand a lot of attention.


            The company could probably also use an influx of good, experienced lean executives, but that’s a separate matter.


            I have no idea how Wall Street would react to a spin-off of Chrysler, but that’s really not the issue. Spinning it off gives Chrysler the best opportunity to achieve genuine improvement. If that can be accomplished, the stock price will take care of itself.


            Chrysler should get its own house in order before it starts living with someone else.


 

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