Market Place: In Turnaround, A Troubled Chrysler May Prove Attractive To Buyers

TIME to start kicking the tires at Chrysler?

DaimlerChryslers statement yesterday that no option is being excluded as it considers its turnaround strategy set off a fresh wave of speculation about whether its Chrysler unit might be put up for sale and, if so, who might be interested.

The American subsidiary could attract many suitors, including private equity firms and overseas manufacturers looking for a North American ally, analysts said.

Interest could be especially strong if Chryslers latest overhaul plan can put an end to its losses, said Wilbur Ross, who has invested in many troubled manufacturing companies over the years.

At break-even, it becomes much more realistic for someone to want to acquire, he said.

Chrysler was acquired by Daimler-Benz of Germany in a $36 billion deal in 1998. The merger agreement did not provide terms for a possible split in the future. It is also unclear how the market would now value Chrysler, which had revenue of more than $61 billion last year but a loss of $1.4 billion.

In a Feb. 9 research report, an analyst with Citigroup in London, John Lawson, estimated that Chryslers business was worth about 11 billion euros, or $14 billion. But health care liabilities of more than $12 billion could offset most of that value.

Still, Chinese automakers, eager to expand into the United States, might cast an eye.

It would be a very bold step, said Anjan Chatterjee, a former executive for the auto parts maker Visteon who is a senior adviser at investment bank Chanin CapitalPartners.

Mr. Ross pointed to Carlos Ghosn, the chief executive of Renault of France and Nissan of Japan, as a logical candidate to consider a deal with Chrysler. Mr. Ghosn has been trying to work with a North American company, and he discussed forming a three-way alliance with General Motors last year. Those talks broke off after G.M. demanded what amounted to a dowry from Renault and Nissan as part of any deal.

But Mark Oline, co-head of corporate finance at Fitch Ratings, said an alliance along the lines of the failed G.M.-Nissan-Renault deal was unlikely for Chrysler, at least in the short term. Any potential partner would probably hang back until Chryslers turnaround was further along, he said.

A partner might also want to wait out Chryslers next round of contract negotiations with the United Automobile Workers union, expected to begin later this year. Chryslers health care liabilities, and how to make them more manageable, are apt to be a major issue in these discussions, Mr. Oline noted.

Chrysler was a darling of the auto industry in 1998, when it was acquired by Daimler-Benz. Nine years later, Chrysler, like its domestic competitors Ford and G.M., is struggling to reverse its declining market share.

As the auto industry has struggled, private equity firms have spent billions of dollars to make bets on troubled automotive companies. Cerberus Capital Management last year led a group of investors that agreed to pay $14 billion for a controlling stake in General Motors financing arm. A firm run by the investor Carl C. Icahn recently offered to buy Lear, a maker of auto parts.

Buyout firms have also shown interest in Aston Martin, the British sports car maker that Ford has put up for sale.

Gerald C. Meyers, a professor at the University of Michigans business school and a former chairman of American Motors, said Chrysler would present a marvelous opportunity for a firm that wanted to take it private, clean it up and take it public again in five years or so. Chrysler itself might welcome the chance to revamp its business without being accountable to public shareholders.

To help engineer a turnaround, there is an array of former Chrysler executives with ties to private equity firms. Thomas T. Stallkamp, the former president of the Chrysler Group, is a partner at Ripplewood Holdings. Gerald Greenwald, a former Chrysler vice chairman, is a managing partner at Greenbriar Equity Group.

And then there is Kirk Kerkorian, who tried a hostile, and ultimately unsuccessful, takeover of Chrysler in 1994 with its former chairman, Lee A. Iacocca. Mr. Kerkorians firm last year worked with Jerome B. York, a former chief financial officer at Chrysler, in urging G.M. to pursue its talks with Nissan and Renault.

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