Tuesday, May 15, 2007

Daimler Sells Chrysler

If you own a Chrysler, pay attention

Daimler’s sale of its struggling American bride immediately sent its shares up 4.5% in Frankfurt.
But Daimler’s sale has not been profitable. In 1998 Daimler paid $37 billion (the 3rd largest automaker at the time). It’s been sold for just $7.1 billion to a company called Cerberus, and Daimler will retain Chrysler’s debts.

Chrysler brands include Jeep, Dodge and its namesake. I own a Chrysler Neon, which has the full house, air con and everything else. I benefited from the negative image by paying very little for a 2nd hand model, and the chances are that if you’re on the lookout for a bargain, Chrysler, right now, might be the way to go.

People who already own Chrylser’s may fear that their resale value will decrease over time, or worse, that no parts will be available. Having finally sold the company, it is very likely that the opposite may in fact happen. The object of the buy-out has been to regenerate the brand. In this sense, according to Jeff Osborne CEO of the Retail Motor Industry organization, the sale is likely to benefit Chrysler customers.

Many Mercedes customers, on the other hand (judging from internet forums attached to these news releases) appear to be very happy that Chrysler is no longer part of the Daimler package. I agree that Chrysler isn’t as quality a product as Mercedes Benz, but I do feel that it adds a lot of zest and creativity to a brand that I otherwise associate with older, richer people, especially politicians. Mercedes is a premium brand, but Chrysler adds youth and vitality. So in that sense it is a pity the marriage didn’t work out.

Of course this is not the first auto-divorce. BMW and the Rover Group (in the 90’s) didn’t work out either. These divorces in the auto-industry present interesting case studies for marketers. It is likely that with Toyota currently riding high (as the world’s top automaker, having dethroned GM), and Ford struggling, we will see other attempts to rescue and marry off less innovative and dynamic auto companies. It does appear that there are simply too many brands attempting to sell their cakes to the auto-community.

It is also an interesting point to make that in one sense, the auto industry and never been healthier. Never before have so many vehicles been sold, in so many countries. But the auto industry and car lovers will not like to hear that this easy motoring utopia cannot improve much more. This is simply because refineries; output is at 90%, with virtually no investment in the upkeep of the metal piping. Why is this? Because refineries are anticipating the imminent decline of output. We are now at what some believe are maximum ever levels of 85 mbpd, and even this figure has been departed from in recent months.

The result is increasing oil prices, and pressure on the auto industry to innovate even more. To make their engines even more efficient. This is perhaps why Japan is leading the world in the auto industry – their excellence lies in both these fields: innovation and efficiency.

But while a Prius may seem to be the car of choice for the future, there are other lucid arguments for the Yaris, where the eco-friendliness is not only determined by how much the final product consumes, but in the energy cost of producing the car. In the Prius’ case, many of the materials (it has two engines) require much greater energy investments in the first place, and overall, the Prius is a much bigger body to build.

Even further into the future the strain on automakers is likely to totally transform or even break the industry. Engineering (specifically for energy conversion) will become a crucial part of manufacturing.

We’re starting to see the first symptoms of ‘morning sickness’ in the auto industry. It is an industry pregnant with promise, but threatened with the absolute agony of childbirth – when the auto-industry must emerge as something else, something capable of using energy in a much cleverer, more sustainable way. Capable of somehow continuing with new, perhaps eventually electric engines. Perhaps something we have never seen before.

One by one they will fall, but hopefully there will be at least a handful of strong survivors. For now, each player needs to be around for as long as it can, so that the fittest may survive, and people everywhere have the best chance of being able to continue going on holiday, driving to work, maintaining their middle class independence. Is that too much to hope for?

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