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The News of Tomorrow: Tata Buys Chrysler

What is real and what is fictional about a plausible new owner for the Chrysler Group?

Vertical integration.

Takeaways


MUMBAI, INDIA — Following Tata's recent $12 billion acquisition of the former British Steel, Ratan Tata, chairman of the Tata Group and Tata Motors, announced today that his group was buying the Chrysler subsidiary from DaimlerChrysler for $1.

Dieter Zetsche, Chairman and CEO of the newly renamed Daimler Group, explained that the sales price was attractive for his group since Tata assumed all health care and pension liabilities for the U.S. employees of Chrysler. These liabilities are estimated to amount to about $20 billion.

Mr. Tata explained that he saw a lot of upward potential in the Chrysler acquisition. "We are proud to have become the owners of one of the Big Three motor companies in the United States."

He added: "It is true that the company, as well as its two U.S.-based competitors, GM and Ford, have fallen on hard times. But I see this as the consequence of a failed product marketing and development strategy, which we are uniquely positioned to fix."

"What top car manufacturers need in the future, given all the tremendous pressures on the global environment, is the ability to build small cars that are safe, reliable and technologically advanced," he said. "That is the traditional strength of our group."

"In contrast," he argued, "building SUVs boiled down to having a corporate strategy with a drug-addict mentality — going for short-term profits at the expense of the long-term viability of the company. That is not the way we do business in India," he concluded.

Some analysts question the value of the transaction. "Daimler should have held out for more cash. After all, it has sunk many billions into Chrysler — in terms of the costs of the initial acquisition, additional investments, loss of market capitalization and coverage of losses during the years of its ownership," said Martin Schmidt, the automotive analyst at Deutsche Bank in London.

But Survinder Singh, the Mumbai-based global car industry expert at Morgan Stanley, expressed a great deal of satisfaction. "What fascinates me the most about the deal is that Ratan Tata evidently is pursuing a vertical integration strategy. How else to explain that the Chrysler purchase follows so closely on the heels of the acquisition of Corus, the former British Steel?"

"I also expect him to go after Alcoa now, the Pittsburgh-based market leader in the aluminum industry. That way, he will have key capabilities in all vital materials for the future of car-building within his own group," Singh added. "The only thing he needs to worry about is Russia's aluminum industry czars snatching the Alcoa deal before Tata pounces," he said.

Meanwhile, the debate in the United States is much more ambivalent.

Ron Gettelfinger, the head of the UAW, the automotive workers union, worries about the reliability of Tata's commitment to assume the pension and health care liabilities of Chrysler workers, retirees and their family members.

"I am worried about the replay of a recent situation in Germany," he said. "Where in the cell phone industry Siemens sold a subsidiary to a Korean manufacturer, washed its hands of any future liabilities for a low sales price — and no sooner than the deal was done, the Koreans realized that the situation could not be turned around and filed for bankruptcy," Gettelfinger said.

A leading member of the U.S. Congress, John Dingell, the Chairman of the Energy and Commerce Committee in the House of Representatives, was livid.

"I am deeply ashamed that it has come to this. I am 80 years old now — and have steadfastly and successfully fought for more than five decades to protect the interests of Michigan carmakers. This is a disgrace — one of the crown jewels of the U.S. car industry owned by a bunch of Indians. The President needs to convene the Committee on Foreign Investments in the United States immediately to ban this transaction."

Faced with the brewing political storm in the United States, Mr. Tata, the head of the Tata Group, was unfazed.

"Success in business requires a long-term view, which is exactly what we bring to this transaction. Yes, it will take years to bail Chrysler out of its current doldrums. Hopefully, we can turn the company around faster than GM and Ford will take," he said. "In our analysis, there is only room for two of the Big Three to survive."

Considering that his company grew from humble beginnings in the mid-19th century to become one of India's largest conglomerates — accounting for about 2.8% of the country's GDP — he may have a valid point.

Even though feelings in the United States are hurt because of the seemingly unstoppable rise of Indian business, Mr. Tata was philosophical. "Who still remembers that India once had the largest economy in the world? It is time that people in the West get accustomed to the new, old realities of global business."

"Let's remember that we have been colonized — and that our national economic development was considerably stifled as a consequence. Nobody can say that our purchasing Chrysler is of that nature. We are jointly seeking the cost-effective and environmentally smart path to a more prosperous future. Deploying Indian engineers to solve the challenges ahead is the path to securing the future of the Chrysler brand as a proud part of the Tata Group," Mr. Tata concluded.

Asked about the acquisition, former U.S. Vice President Al Gore said, "As U.S. consumers demand, at long last, more fuel-efficient cars, the acquisition of Chrysler by the Indians is the price Detroit and an unenlightened U.S. Congress have to pay for failing to keep U.S. car companies on the leading edge of the global move toward environmental technology."

He gave this comment via Blackberry from Los Angeles, where he hopes to win the Best Documentary Oscar at Sunday's Academy Awards for "An Inconvenient Truth," his film warning about the dangers of global climate change.

Meanwhile, there are unconfirmed reports that Bob Lutz, vice chairman of GM and former president of Chrysler, has flown his Czech fighter jet to Mumbai to negotiate with Mr. Tata to serve as the non-executive chairman of Chrysler.

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About Stephan Richter

Director of the Global Ideas Center, a global network of authors and analysts, and Editor-in-Chief of The Globalist.

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