May 14, 2007

Chrysler Sold For $7.4B

DaimlerBenz is selling an 80% stake in Chrysler to a U.S.-based VC firm for $7.4 billion. Daimler bought Chrysler for $37 billion ten years ago, so this represents a loss of more than two billion dollars a year since then.

Why is it that U.S. automakers are apparently unable to compete in today's business environment? Both GM and Ford are losing money in their auto manufacturing operations; their only consistently profitable business activities are their finance arms; GM makes more money selling home mortgages than doing anything else and would be lucky to break even on its auto sales. Same thing with Ford; its credit cards are its biggest profit center, and only its trucks and SUVs are sold at anything approximating a profit.

Are they the victim of unfavorable trade policies or unfair subsidies by the home countries of their competitors? Are they taxed too heavily by the U.S.? Are they overburdened with oppressive union contracts? Or is it just that their cars suck?

Perhaps more interestingly, should we Americans even care?

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