Daimler-Benz paid $36 billion for Chrysler in 1998, but industry analysts now place its value at anywhere from nothing to $13.7 billion.
As two private equity firms examine Chrysler's books and consider making offers to buy the company this week, they'll be grappling with a question whose answer is uncertain: How much is the automaker worth?
Estimates vary with the value placed on assets such as brand names, factories and materials, all weighed against Chrysler's estimated $19 billion long-term liability to pay health care benefits for unionized retirees.
Some analysts say the liability exceeds the value of the assets, meaning that German parent DaimlerChrysler would have to pay someone to take Chrysler. Others say the company is worth more to the right buyer.
Hard to Figure Out
"It's a hard thing to really figure out, and the uncertainty is what the health care liability really means," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "If that were removed, then it's a wholly different game."
Experts from one of the equity firms, Cerberus Capital Management, were at Chrysler's Auburn Hills, Mich., headquarters on Monday, said a company official who requested anonymity because the talks are confidential. Representatives of the Blackstone Group are to arrive later in the week, the official said Tuesday.
The visits are the latest developments since DaimlerChrysler Chairman Dieter Zetsche said Feb. 14 that all options are on the table for the Chrysler business and that he would not rule out a possible sale.
Also said to be exploring a purchase of the struggling Chrysler are General Motors, Canadian auto parts giant Magna International, and private equity firms Apollo Management and Carlyle Group.
GM won't comment but won't deny the reports, while all four private equity firms have refused to comment.
Cole said Chrysler's value varies with the potential buyer. A private equity firm could take the company into bankruptcy, shed its union contracts and then break it into pieces for sale at a handsome profit, he said.
Combine Retirement Plans
GM could sweep its estimated $50 billion retiree health care liability into Chrysler's and negotiate a deal with the United Auto Workers union to take on the cost at a discounted rate. GM, Cole said, could save billions of dollars on its health care liability by buying Chrysler.
"If that were done, you could, I think, make a pretty good case that GM would be the ideal suitor," he said.
Chrysler spokesman Jason Vines discounted analysts' estimates of a negative value, saying that Chrysler earned $4.92 billion between 1998 and 2006.
He would not place a value on the company, but said it also is cutting expenses and will introduce 20 new vehicles over the next three years as well as 13 updated cars and trucks.
The new products are a response to consumers' shifting from truck-based vehicles to more fuel-efficient car-based models, he said.
Zetsche, speaking Tuesday at the Geneva Motor Show, said he is confident Chrysler Group's restructuring plan will work. He also said that the finance arm of Chrysler could be sold.
Chrysler on Feb. 14 announced plans to shed 13,000 jobs, including 11,000 hourly and 2,000 salaried workers in the U.S. and Canada as part of its restructuring plan.
The company plans to close one manufacturing plant and make cuts at several others in order to reduce factory capacity to match lower demand for its products.
Chrysler lost $1.475 billion in 2006 and said it expects losses to continue through 2007.