Stock Investing Ė Chrysler up for sale Ė What is Germanyís DaimlerChrysler thinking?February 23, 2007
DaimlerChrysler has basically thrown in the towel by hiring J.P. Morgan Chase to find a way for the luxury German auto maker to divest itself of the Chrysler automobile company here in America. We went back and took a look at our stock research on the original German purchase of Chrysler and wondered how we got from there to here. Chrysler was a stock pick of ours as far back as 1981 when Lee Iacocca brilliantly prevented bankruptcy, and turned the company around.
When it comes to stock investing, you have to look behind the fluff, and figure out whatís real. Our stock research shows that Chrysler is in the same boat as General Motors and Ford. All three companies in their internal budgets which is how they guide their companies through the next 12 months and beyond, have built into their plans continued degradation of their domestic automobile market share. This very simply means that they plan to continue to lose market share to the Japanese in each of the next three years.
This is no different than a boxer stepping into the ring and thinking about which of the next several rounds I will get knocked out in. Itís throwing in the towel, and you donít want to get involved with stock investing with companies that have that attitude. Chrysler along with its two American counterparts General Motors and Ford must implement a couple of very simple ideas to make a comeback. They are:
2) Sell it at sensible, competitive price without playing games with the customer
3) Service their cars in an appropriate manner that retains and builds customer loyalty
It is unfortunate that our home based car manufacturers manufacture ďcrapĒ, but thatís just what it is, pardon the expression, and always has been. We never realized it as consumers until the Japanese came along and implemented zero defect manufacturing. This means Toyota, Nissan, and Honda will not allow a car to leave Japan unless it is perfect coming out of the factory.
We on the other hand have made a decision to allow less than perfect cars to leave the assembly line. Detroitís decision is that the consumer after taking delivery will make a list of problems, and then have the dealer fix the issues at the dealer level. This is unacceptable to the American consumer, and Detroit should immediately take steps to fix it.
Detroit wonít however. They are locked into a different mindset. In Detroitís way of thinking, it would be prohibitively expensive to implement zero defect manufacturing in this country. Although this might be true for factories currently in production, this would no be true for new factories coming on stream. Since GM and others could have implemented this policy years ago, and chose not to, Detroitís big three is at least a decade further behind the eight-ball.
When you take delivery of a Japanese car, it is perfect. Everything fits, everything works, and very seldom is there an issue. I do remember buying a new Acura MDX and having the starter fail the first week out of the showroom. No only did Acura tow the MDX in and replace the starter at no charge, but I found out later that the faulty starter was air expressed to Japan to determine why it failed. Acura wanted to learn from the experience. Could you ever imagine in your wildest fantasies, an American car dealer sending the part back to Detroit for rip down and investigation. Itís not even vaguely possible.
Sensitive Competitive Pricing Ė No Games
Sure, not in my lifetime, maybe in yours. When you walk into an American dealer, they still try to snow you. In our investment work when we get involved in stock investing, we do hands on stock research. If itís Detroitís manufacturers, we walk into dealers all the time to see whatís going on. We are looking for tidbits of information, what we call the scuttlebutt method of stock investing.
We were in a Chrysler dealer recently, and looked at a model that seemed interesting on the showroom floor. The car had a base price of $22,000; the bottom list price after accessories was $39,000. You got to be kidding? I have done advanced postgraduate courses in mathematics. I would never be able to compare one dealerís pricing with another when you are itemizing numbers in that manner.
When you walk into a Japanese dealer, there are no games. The car comes from Japan loaded, the price is the price although negotiable, and the lease price is the lease price. You can sometimes negotiate more miles on a lease, as I did recently, but basically you can very easily work dealer against dealer for the best price possible.
The America car dealers disallow this negotiation method by having 30 plus items individually priced on the vendorís window sticker. How are you going to compare prices using that methodology? The answer is you are not, and they know it. God forbid you are a woman going in to buy a car; they really take advantage in that instance.
Service and Customer Loyalty
I live in Westport, CT., you canít buy a house under a million dollar, in fact a million dollars is a tear down. We have a Chrysler jeep dealer adjacent to Westport which is the closest dealer if you want to buy any kind of Chrysler. Upon inspecting it, I found the shop employees who handle the customers to have grease on their clothes. These are not the guys who fix the cars. They are the service advisors.
Eighty years of building cars and they canít get their act together, and Detroit wants to know why they continue to lose market share. In the last two or three years, Japan has begun implementation of a free oil change policy. Everybody thinks they are being kind to their customers. The truth is the cars never break down, people were leasing their cars, and consequently never changing the oil. Cars were coming back with 30,000 and 40,000 miles on them without oil changes.
The reason is that Japanese cars really do not require maintenance for 30 or 40K. American cars on the other hand begin to fall apart after 30 or 40,000 miles. It is said that the engine on the Honda is so strong that it will outlast the body of the car. If you look at American car dealer service centers, they are always busy doing repairs. This is not the case at Japanese car dealers.
DaimlerChrylser will find a buyer for its Chrysler line. General Motors is even talking about buying it, which is like the lame leading the blind. GM is trying to save and realign itself, and wants to take on what German super management teams have FAILED at, which is taking Chrysler to the next level. Our answer is SURE.
Goodbye and good luck