Chrysler to be cut loose?

By Elizabeth Strott

The phrase "struggling U.S. auto maker" seems almost redundant these days when talking about General Motors (GM, news, msgs), Ford Motor (F, news, msgs) and DaimlerChrysler (DCX, news, msgs).

But now DaimlerChrysler, the latest auto maker to announce a restructuring, is feeding rumors that the U.S.-German entity may be on the verge of selling off its large U.S. unit, acquired in 1998.

The company today announced the elimination of 13,000 jobs at its Chrysler unit and said the cuts, which account for 16% of its U.S. work force, would be spread out over the next two years. The eliminated jobs consist of 11,000 hourly-based positions and 2,000 salaried workers.

DaimlerChrysler also said it will close an SUV plant in Newark, Del., by 2009 and eliminate shifts at two other plants.

The company said it is exploring "far-reaching strategic options" for its Chrysler Group. "No option is being excluded in the interest of arriving at the best possible solution for the Chrysler Group and DaimlerChrysler as a whole," the company said in a prepared statement.

"This is Chrysler's last chance," Argus research analyst Kevin Tynan told CNBC. He said that if this restructuring doesn't work out, he expects the "DaimlerChrysler marriage to dissolve."

A big setback

The restructuring plan is expected to help the company save $4.5 billion and help it return to profitability by 2008.

DaimlerChrysler's stock rose $5.33, or 8.3%, to $69.78 and traded more than 10 times the normal volume.

But the move is seen as a setback for CEO Dieter Zetsche, who led the merger between Daimler and Chrysler in 1998 when he was chief of the Chrysler Group. Zetsche became CEO of the merged company in 2006.

DaimlerChrysler's restructuring comes as the company reported a plunge in profit for the fourth quarter, mostly due to a huge operating loss at Chrysler Group. DaimlerChrysler said fourth-quarter profit plunged 40% to $749 million; Chrysler Group reported a $162 million operating loss for the quarter.

Full-year operating profit at Chrysler Group was even more dismal: a loss of $1.46 billion. Chrysler's loss was especially disappointing as the company had until recently managed to keep its head above water, unlike U.S. rivals GM and Ford. For 2005, Chrysler reported a $2.02 billion profit, compared with the $10.6 billion loss Ford reported that year.

"At some point investors want to see that the end is in sight," said Juergen Pieper, an analyst in Frankfurt at Bankhaus Metzler, told Bloomberg News. "Chrysler's problems are multifaceted."

DaimlerChrysler did manage to report full-year operating profit of $7.17 billion for the overall company, helped in part by strong profit at its Mercedes division. The company said it expects a "significant" increase in profitability between 2007 and 2009.

'DaimlerChrysler faces a decision'

Some investors have been calling for a spinoff of the Chrysler unit, as shares have fallen nearly one-third since the companies merged in 1998.

One analyst says the decision about what to do with Chrysler is still up in the air. "DaimlerChrysler faces a decision. It either needs to much more aggressively integrate Chrysler and Mercedes or separate the business," John Casesa, managing partner of consulting firm Casesa Strategic Advisors, told CNNMoney.com. "The management has a fundamental decision at hand."

Nearly half of the vehicles Chrysler makes are trucks and sport-utility vehicles, which have faced sluggish sales as many buyers have turned to more environmentally sound cars in the wake of rising gas prices.

What's next for Chrysler?

Now DaimlerChrysler is assessing options for its U.S. division. Private equity? Nissan-Renault? An IPO? Any of these could be in Chrysler's future.

Talks of an alliance between Nissan-Renault and GM ended last year without any deal, and Nissan-Renault's CEO, Carlos Ghosn, has said in the past that he'd like an alliance with a U.S. partner.

CNBC's Phil LeBeau said that there was "not a single reference to Chrysler and Mercedes working together" when DaimlerChrysler made the restructuring announcement this morning. From the tone of the announcement, it seems pretty clear that DaimlerChrysler would sell the Chrysler unit, LeBeau noted.

An IPO of the unit would likely be run by Chrysler's current board, LeBeau said.

The merger between Daimler and Chrysler cost $44 billion, and LeBeau said the price tag for Chrysler could be anywhere between $13 billion and $17 billion. But he added that the price could be lower because it is a company under pressure.

And Chrysler makes 3

Chrysler's struggles are old news to Ford and GM.

Earlier this month, Ford announced it was bringing the Taurus brand back, after suffering huge losses and falling to the No. 4 sales spot in the U.S., an attempt by CEO Alan Mulally to get Ford back into the game since he took the reins in September.

In late January, GM said it was delaying its fourth-quarter and full-year earnings report, as well as restating financial results for several years. The move seemed like an attempt to prevent what happened in November 2005: GM shares plummeted after the auto maker said it had overstated profit by almost $400 million for 2001.