Chrysler Rumors Begin - Nissan or VW

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December 14, 2007

Today there is a report in the Detroit News that Nissan-Renault are in talks with Chrysler over possible technical cooperation on pickup truck and small car development. The article with regard to specifics, as expected, was vague.

It was not too long ago that I wrote of a possible Chrysler link-up with Nissan-Renault. It certainly did not take long for the rumors and speculation to begin.

I still believe if Chrysler is going to survive in some form, they have no other choice then to form an alliance or some significant level of cooperation with a global manufacturer.

This leads me to another possible strategy for Cerberus, an alliance with Volkswagen (VW).

VW has been losing money in the US for the past couple years. The major issue has been the falling value of the dollar compared to the euro. As a result, VW has announced they are considering a site for a brand new US based manufacturing operation with a goal of 1 million sales (currently about 250k). Also, VW has a plan to nearly double their global sales to 10 million a year by 2018. If realized, VW would surpass both Toyota and General Motors in sales as they both currently sell about 8 million vehicles per year.

After stepping back and thinking about VW's goals, I just do not think it is likely to be achieved without an acquisition or two. For one, both Toyota and GM have a lot of momentum in emerging markets and two, global competition is very fierce and sooner rather than later global growth will have to begin to level off. Which is why, I believe an alliance with Chrysler/Cerberus could be a perfect fit in helping VW attain their goal.

There is no doubt Cerberus would have interest in a deal as they need someone with deep pockets and also an out if or when Chrysler falls apart (which I believe is very likely and could happen in the next 12 - 18 months).

For many of the same reasons I outlined in my Chrysler-Nissan article, I believe a Chrysler-VW strategy fills the same voids for each company. Chrysler already has a deal in place to manufacture a minivan for VW and Chrysler does have excess capacity that could be turned over to VW for the assembly of their products in the US quickly. Today, even working with the union (UAW) in Chrysler's factories is a lot more attractive after the recent contract agreement between the two was ratified.

This would help ease the dollar-euro losses for VW. Also, Chrysler does have experience with a German partner and are fully aware of the cultural issues that will certainly develop. They already know German, so why learn French or Japanese right now.

Personally, I think given the strong euro, VW could purchase a significant stake in Chrysler and provide a cash infusion with minimal risk to the company. And, this gives VW something they need very quickly, production in the US.


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