Magna Not Buying Chrysler

The owners of Daimler Chrysler have decided to not sell it to Frank Stronach and Magna, instead the successful suitor is Cerberus Capital Management for $7.4 billion US.  Now, Frank Stronach is in very large trouble, or not. 

Magna, for those who don’t know it, is one of those anonymous companies that make subassemblies for auto companies.  For example, Chrysler doesn’t make seats.  There is no seat upholstery department at Chrysler and hasn’t been for decades.  It is cheaper for an automaker to job it out to another company to make that component. 

Remember "Body By Fisher" on GM products?  Fisher Body started out in the late 1800’s in Ohio, building horse-drawn carriage bodies, then auto bodies when they moved to Detroit in 1904.  GM recognized the special skills at Fisher and contracted Fisher for the bodies of the earliest Cadillac Osceolas and some Buick models. 

Magna, has expertise in things like seats, instrument panels, powertrain systems, mirrors, electronics, exterior trim and ‘closure systems’ which you and I would call door latches.  About 25% of Magna’s income comes from Daimler Chrysler.  Magna makes the components, then ships them Just In Time to the assembly line and they get installed in whatever product is being punched out that hour.

Frank Stronach wanted to buy Chrysler.  He wanted to buy it so much he reached out to a Russian Billionaire named Oleg Deripaska.  Deripaska bucked up to the tune of $1.54 Billion for more or less half of Magna.  Then, Chrysler was sold to Cerberus and the dream of owning one of Big Three went into the dumper for Frank.  Yes, Frank Stronach is Belinda Stronach’s dad. 

Not getting Chrysler is only part of the story.  Magna is changing their focus to the European market.  They already have big contracts with BMW, Porsche and VW, as well as an engineering development centre in Graz, Austria.  With a Russian partner, Magna will expand, but not in Canada, which will cost a lot of jobs. 

Following on, one can bet that Cerberus, now owning Chrysler, will gut as many jobs as they can possibly get away with.  Expect the Canadian Auto Workers union to howl mightily, as the majority of the jobs that will be canned will be good paying union jobs.  Regular people doing the real work at Chrysler will be out on their asses.  Expect the pension and benefits for retired workers to be "refocused" or "streamlined", meaning, cut to nothing. 

But shed no tears for Frank Stronach not being the successfully buyer of Chrysler.  He gets a $150 Million dollar payday to his personal consulting firm, just for the sheer gratitude of doing the deal with Oleg Deripaska.  Plus stock dividends, the share price is up and so on. 

Cerberus Capital gets the smallest of the Big Three and Daimler gets rid of a company they had no idea how to run.  Wall Street and Bay Street?  They’ll do fine, as the share price for both companies will dip, then spike as the gutting progresses and three guesses as to when Wall Street will sell off their interest in Chrysler?  Right at the peak. 

Chrysler will die a lingering death, but Cerberus will be fine,  Magna will be fine.  Frank and Oleg will be fine.  The only ones who are going to hurt are the thousands of employees who will have a pocket full of nothing to show for 25 or 30 years of work.