Posted by: David Welch on May 7, 2007
It’s not exactly a poison pill. But if anything might ward off the suitors who are scouting an acquisition of the Chrysler Group from German parent Daimler, it’s today’s gasoline prices. Since Feb. 14, when DaimlerChrysler Chairman Dieter Zetsche basically put Chrysler on the for-sale block to today, gasoline prices have risen from about $2.25 a gallon to $3.03 a gallon, according to AAA.
Anyone eyeing Chrysler will need to be wary of how this company will boost sales with a gas-guzzling lineup. Sources close to Chrysler negotiations say two of the bidders—private equity firms Blackstone Capital Partners and Cerberus Capital Management—are finding more things to worry about as they push on with due diligence. A news report from Germany says that the third bidder, a Canadian duo of private equity firm Onex Corp. and parts maker Magna International, are the last bidders still looking.
Anything can happen in the to-and-fro of big-time acquisition talks. But Chrysler’s weak retail performance can only make the suitors nervous. About two-thirds of Chrysler’s sales come from suvs, trucks and minivans. Chrysler sales were up almost 2% last month thanks to heavy discounting and massive sales to rental fleets. But that’s not way to run a business.
Just look at Chrysler’s sales performance this year. Sales of every Jeep except the new Wrangler are down at least 10% through April. Dodge has a few gas hogs, like the Dakota pickup, Durango suv and Magnum wagon, that aren’t selling. There aren’t enough small Dodge Calibers in the Chrysler’s lineup to bring in buyers when pump prices peak. Private equity firms may welcome risk at the right price, but this deal may be too dicey even for them.