GM Reportedly in Talks With Daimler to Buy Chrysler Unit

By Sholnn Freeman
Washington Post Staff Writer
Saturday, February 17, 2007

Shares of DaimlerChrysler climbed yesterday after media reports that General Motors was in talks to buy the German firm's Chrysler division.

Chrysler officials in Germany played down the reports, saying the primary focus now for Chrysler was a restructuring aimed at returning it to profitability. And U.S. industry executives struggled yesterday to assess how GM would benefit from an alliance with Chrysler. GM is in the process of shrinking its operations in an attempt to increase its profit.

Other potential Chrysler suitors include European or Asian carmakers seeking a bigger foothold in North America. Renault-Nissan Motor chief executive Carlos Ghosn, who unsuccessfully sought to enter into an alliance with General Motors last year, has said he is open to new partners. He has not, however, publicly expressed interest in Chrysler.

Adding Chrysler to his alliance could help Ghosn build up his clout in the United States, the world's largest and most profitable auto market. Another key player is China's Chery Automotive, which has been trying to establish a presence here over the past few years.

The trade publication Automotive News, echoing reports in the German media, cited unidentified sources say saying GM had entered into high-level talks to buy Chrysler. Other reports have said two companies were discussing the possibility of entering into a joint-development project to build sport-utility vehicles.

DaimlerChrysler's shares gained more than $9 this week, including $3.08 yesterday, to close at $73.33 on the New York Stock Exchange. Shares were up 4.4 percent yesterday and 14 percent for the week.

In a statement yesterday, GM said: "We are not going to comment on the speculation concerning discussions between DaimlerChrysler and GM related to Chrysler."

Some industry executives suggested that GM could be interested in one or more pieces of Chrysler, rather than trying to absorb the whole company. Already, GM and DaimlerChrysler collaborate on gas-electric hybrid systems for big trucks in a consortium that includes the German automaker BMW.

An industry executive said that buying all of Chrysler could give GM additional volume and allow it to remain the world's largest automaker. Toyota is on track to supplant GM at the top this year.

Under pressure from German shareholders, DaimlerChrysler Chairman Dieter Zetsche said Thursday that he was open to all options related to Chrysler's future, including a spinoff or a sale. DaimlerChrysler also announced a recovery plan for Chrysler that includes laying off 13,000 workers and slowing production at plants that produce pickups and minivans.

DaimlerChrysler officials have said they expect Chrysler to lose money in 2007 but to achieve a profit margin of 2.5 percent by 2008. Analysts say DaimlerChrysler's other divisions, including the Mercedes-Benz car group, would offset Chrysler's losses.

The reaction in German publications yesterday to a possible spinoff was summed up by the word befreiungsschlag, which means a kind of liberation.

Until now, a separation of the two automakers had been a taboo subject, particularly when DaimlerChrysler was controlled by Juergen E. Schrempp, its former chairman. Schrempp was the main force behind the merger. Analysts said that Zetsche has now opened the path to a separation. Zetsche spent five years in Auburn Hills, Mich., as chief executive of Chrysler, leading a campaign to improve profitability.

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