A Greedy Grab For Chrysler
Say what you will about the corporate raiders of the '80s, they scared the daylights out of complacent chief executives. In their drive for a quick buck, the greenmailers, the leveraged buyout crowd, and the takeover artists forced companies to shake off years of bureaucratic lethargy, cut expensive layers of management, and dispose of marginal operations. Although they wildly overpaid for some assets (witness RJR Nabisco) and even trashed a few companies (witness Revco and Fruehauf), the raiders collectively constituted a market force for positive change. The current surge in productivity results in large part from their short-term, shareholder-driven behavior. So you might think Kirk Kerkorian's $55-a-share bid for Chrysler Corp. is in the finest tradition of doing well by doing good.
Not this time. Chrysler in 1995 is already the most efficient of the Big Three. It makes $2,100 operating profit on each car produced, compared to $877 for Ford Motor Co. and $734 for General Motors Corp. It has one of the fastest product-development cycles in the world. Its cab-forward design is pathbreaking. Its Neon is the first American small car to impress the Japanese. Its minivans lead a market it practically invented. Its Jeeps revitalized the entire sport-utility market. Sure, the company has a serious quality problem that is hurting sales. But Chrysler recognizes the problem and is moving quickly to remedy it.
In short, Chrysler has done virtually everything right in rebuilding itself. That is precisely why it has $7.3 billion in cash--money Kerkorian, as a 10% minority shareholder, says is his. Hard as we try to think of changes Kerkorian and his sidekick, Lee A. Iacocca, might make to improve the profitability of Chrysler, we come up empty. His bid is simply a quick grab for the fruits of success from an efficient, competitive company, not a move to squeeze ready cash out of a bloated corporate behemoth.
The Council of Institutional Investors agrees. In the '80s, this trade group of big pension funds, led by the California State Teachers Retirement System, was in the forefront of banging heads in boardrooms to dump recalcitrant CEOs and downsize corporations. This time around the pension funds are lining up behind Chrysler Chairman Robert J. Eaton. They argue that Kerkorian's unfinanced bid will, if successful, sacrifice Chrysler's long-term viability for short-term gains.
We totally agree. Seven billion dollars is a lot of money, but Chrysler has a lot to do. It must spend heavily today to improve quality. It must be able to invest in product development during the next recession. That takes capital, lots of it.
The great danger in the $20.5 billion Kerkorian bid is that it can trigger a speculative financial froth that does serious damage to the real economy. Many other competitive companies in cyclical industries are sitting on piles of cash right now. Nearly all of them made that money the hard way, by boosting productivity, not prices. Revving up already overheated bank lending and reversing the healthy tide of cutting debt can only hurt the economy. The '90s are simply not the '80s; Corporate America does not need the lash of the "greed-is-good" guys. This time around, greed is just greed.