Defensive maneuver
Stronach, 74, may get a chance to rescue Chrysler again. But this time it’s to buy all of the Chrysler group -– or to find ways to help his largest customer.
Magna, ranked by Automotive News Europe as the world’s third-largest parts supplier, is positioning to buy some or all of Chrysler if the car company’s turnaround plan falters. General Motors, Magna’s second-largest customer, also is pursuing Chrysler.
And there are other companies interested in the US division of DaimlerChrysler. Private equity fund Cerberus Capital Management and a team led by Blackstone Group and Centerbridge Partners are also among the front-runners to buy the company, two people familiar with the talks told the Bloomberg news agency last week.
Part of Magna’s motivation is defensive -– 26 percent of its sales come from Chrysler.
Magna, of Aurora, Ontario, Canada, posted total sales last year of $24.18 billion (about €18.4 billion).
Should Chrysler fall into the hands of a private investment group, Magna could face further price pressures as such a group tries to recoup its investment. Another owner also might prefer other suppliers.
There’s also Stronach himself. He is a strong-willed, resourceful entrepreneur who usually gets what he pursues, says Canadian Auto Workers President Buzz Hargrove. Stronach met with Hargrove twice late last month to discuss a possible Chrysler deal, Hargrove confirmed.
“He sees where he wants to go, devises a path and he is not often stopped until he gets there,” Hargrove said.
To obtain Chrysler, with 2.5 times the revenue of Magna, Stronach would have to stretch beyond his comfort zone on several fronts. He’d have to take on debt, which he has tried to avoid since Magna had a brush with bankruptcy in the late 1980s.
He would have to shed his operating style and possibly take on partners, including some of the New York funds, to pay for Chrysler.
His mostly nonunion work force would be transformed by the influx of about 50,000 UAW members working at more than two dozen assembly and powertrain plants.
But even without a takeover, Magna is so closely aligned with Chrysler that it could help in other ways, such as taking over certain Chrysler operations.
Magna assembles vehicles for D/C and two other automakers at its Magna Steyr plant in Graz, Austria.
Among the record 248,000 vehicles assembled there last year were the the Jeep Grand Cherokee SUV and Voyager minivans for DaimlerChrysler.
Resources at the ready
Stronach, an Austrian native who also owns horse racing tracks, has said he wants to open a Graz-like assembly plant in North America.
Magna has the wherewithal. The company has $2 billion in free cash and will save an estimated $84 million annually after last week’s decision to halve its dividend.
In 2006, Magna posted net income of $528 million, compared with $639 million in 2005. The company, which makes everything from frames and lighting to seats and roof systems, remains one of the healthiest suppliers in North America. That’s despite a fourth-quarter drop in net income to $29 million, compared with $83 million in the year-earlier period.
Baumhower says Magna Steyr has performed exceptionally well after stepping into a tough situation at the Wrangler paint shop.
At the Toledo park, Kuka is responsible for building bodies for the Wrangler and Wrangler Unlimited; Magna Steyr runs the paint shop; and Ohio Module Manufacturing Company makes the vehicle’s chassis. Chrysler does final trim and assembly operations.
The UAW enjoys a healthy relationship with Magna Steyr, Baumhower says. The company is paying Chrysler-like wages of $28 an hour to most of the 100 workers in the paint shop. That includes about 50 workers who retired from other Chrysler operations and joined Magna, he said
The relationship has worked great because the workers get their old wage rate, but Magna Steyr is spared the $12,000 annual cost of health care for each worker because they are on retiree benefits, Baumhower says.
He adds: “Magna has treated our people right.”
You may e-mail Robert Sherefkin at [email protected]
You may e-mail David Barkholz at [email protected]
