Commentary: Nissan? Drive Carefully, Mr. Schrempp

DaimlerChrysler Chairman Jurgen E. Schrempp can't help himself when it comes to Japan's troubled No. 2 auto maker, Nissan Motor Co. He confesses that he just has to take a look under the hood. Buying a stake in Nissan could help Schrempp achieve two significant objectives: DaimlerChrysler might crack the almost impenetrable Japanese domestic auto market and transform itself from a bit player in Asia to a formidable competitor. What's more, Schrempp could also add some hard-to-find top-line growth.

Those are tantalizing prospects. Gushes Schrempp: "Nissan offers excellent opportunities." And although he claims to be "flipping coins for the next three or four months," Schrempp has a high-level negotiating team in Tokyo attempting to strike a deal that could give DaimlerChrysler control of Nissan. One source familiar with the talks tells BUSINESS WEEK that a handshake could come by the end of March.

But Schrempp should take another long look under the hood before he signs anything--and takes on a major headache just three months into the task of blending Daimler and Chrysler. Robert A. Lutz, retired vice-chairman of Chrysler Corp., offers this advice to his former colleagues: "They might as well take $5 billion in gold bullion, put it in a huge container, spray-paint the word `Nissan' on the side, and drop it into the middle of the Pacific Ocean."

LEMONS. What Lutz and other critics are most concerned about is Nissan's massive debt--$21 billion--and its bland lineup of cars. "Jurgen Schrempp should not think he can just waltz into Nissan and somehow make them better," says Furman Selz LLC auto analyst Maryann N. Keller. "Nissan's liabilities are just staggering. If it were in the U.S., Nissan would be bankrupt."

On the other hand, Japan's economic crisis provides what could be a once-in-a-lifetime chance to buy companies like Nissan or Mitsubishi Motors, which recently said it is seeking a partner. And DaimlerChrysler isn't the only Western auto maker tempted to take some of the billions it has socked away for a rainy day and buy growth on the cheap. Volkswagen, Renault, Ford, and General Motors are all kicking the tires on some of the industry's biggest lemons. "We definitely have some interest," enthuses John F. Smith Jr., chairman of General Motors, which has already boosted stakes in Suzuki Motor to 10% and Isuzu Motors to 49% last fall. "It's a good time to be looking over there."

Why should these companies be regarded as lemons rather than diamonds in the rough? To fix them, critics say, a Western buyer would have to deal with a quagmire of product problems, culture clashes, and debilitating debt. What's more, the same local politics that have kept U.S. and European cars out of these markets could trip up anybody who comes in and tries to overhaul Asian auto companies, by closing inefficient and redundant factories and laying off workers. "Some of these CEOs are so macho they think they can come down from the mountain and turn around companies instantly," says University of Michigan auto researcher David E. Cole. "But that's how executives lose their jobs."

THINK TRUCKS. Indeed, DaimlerChrysler shareholders are already fretting over the awesome task of reviving Nissan. Warns Christian Strenger, head of fund managers DWS, a unit of Deutsche Bank: "You can only do so many things at one time, even if you are Jurgen Schrempp."

Still, Schrempp doesn't have to put the entire idea of Nissan out of his mind. Analysts say Schrempp should steer clear of its car business and try for a stake in its heavy-truck unit. Nissan truck execs are already considering restructuring by closing a factory and laying off 3,000 workers. The unit also has relatively modest debt of $1.8 billion and would fit nicely with DaimlerChrysler's Freightliner and Mercedes-Benz heavy-truck units.

A controlling stake in Nissan's car business, however, could cost DaimlerChrysler $3 billion to $6 billion and leave the German-American auto maker liable for debts valued at $21 billion to $36 billion, depending on how they are calculated. Just who will be on the hook for that debt is said to be a point of contention in the negotiations.

Such thorny issues are why Schrempp's usual "speed is everything" approach is ill-advised with Nissan. He should tap the brakes before amassing DaimlerChryslerNissan. It might appear to be a global automotive powerhouse in the showroom, but on the road it could turn into a clunker.

Before it's here, it's on the Bloomberg Terminal.