Feb. 16 (Bloomberg) -- Historically, Chrysler has provided the U.S. auto industry with a splash of drama: It was either sliding toward ruin or making a remarkable comeback from the depths.

Even in the days when General Motors Corp. and Ford Motor Co. prospered, Chrysler managed to get into trouble. Once it needed a loan guarantee from the U.S. government to survive.

When luxury-car-maker Daimler-Benz AG bought Chrysler Corp. in 1998, the American manufacturer of Jeeps and Dodge pickup trucks was at one of its peaks.

It should have been no surprise, then, that in the past nine years Chrysler has continued to bounce back and forth between profit and loss under its new owners in Stuttgart, Germany -- or that last week DaimlerChrysler AG said it might sell the business that now makes up the second half of its name.

The German company's experience also confirms my long-held notion that mergers boost executive egos not shareholders' interests. I foolishly thought in 1998 that the Daimler-Chrysler marriage was one that made sense because the companies' vehicles seemed complementary.

Not so. Chrysler, based in Auburn Hills, Michigan, had an operating loss equal to $1.5 billion in 2006 and the parent company is making its second round of job cuts in search of black ink. DaimlerChrysler plans to eliminate 13,000 Chrysler jobs in the next three years. Earlier, 40,000 jobs had been cut.

The parent company said it was considering ``all options'' for Chrysler. That has led to speculation of a spinoff, a sale to a Chinese manufacturer or a joint venture with Carlos Ghosn's Nissan-Renault combination or another auto company.

Bargain Time?

Forget all that. The perfect solution for Chrysler is a leveraged buyout. Chrysler may be worth about $5 billion, says Ronald Tadross, a Banc of America Securities analyst in New York. Five billion would be small change for cash-laden buyout firms. Didn't Blackstone Group LP just pay a record LBO price of $39 billion to get Equity Office Property Trust?

History also suggests that Chrysler might be a bargain. The automaker, which had a stock market value of $30 billion-plus in 1998, may be poised for another of its comebacks.

A buyout firm could get Chrysler's costs in line. It might spur the design of new cars to cut Chrysler's dependence on gas- guzzlers -- about half of its sales come from sport-utility vehicles and pickup trucks.

If you will allow me, Chrysler may need more cars like its PT Cruiser. I drive a red one, and if I had the kind of cash buyout firms have, I would get a second one in vanilla and a third one in electric blue.

Climax

After a reconstitution, another patented Chrysler comeback story would make the news. The buyout firm could then take the company public at a nice profit. Instead of Daimler-Benz playing the role of gullible buyer, it would be individual investors.

Buyout specialists such as Cerberus Capital Management, Wilbur Ross and Carl Icahn have already lined up to buy auto- parts makers whose fortunes have suffered along with those of the U.S. vehicle manufacturers.

Chrysler may prove irresistible.

(David Pauly is a columnist for Bloomberg News. Opinions expressed are his.)

To contact the writer of this column: David Pauly in Fort Myers, Florida dpauly@bloomberg.net

Last Updated: February 16, 2007 00:02 EST