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It is reported on by auto journalist Paul Lienert: Indian car maker Mahindra and Mahindra is looking at the possibility of acquiring the Jeep brand from Chrysler.

Or, maybe it’s not. That was the headline, but the rest of the story backs off. It merely says that the two companies are considering Mahindra’s performing some “contract” engineering work for Chrysler.

And then it says this:

“According to the Economic Times, Mahindra and Chrysler now are discussing several options, including one scenario that would see Mahindra doing some contract engineering work in India for the U.S. automaker, as well as the possibility of the companies exchanging equity stakes.”

Exchanging equity stakes?

Don’t be ridiculous.

(more after the jump)

Mahindra is the largest automaker in India. Number two is Tata. Tata has enough money in the bank to write a check to Ford for Jaguar. Mahindra has even more money: they could probably write a check for Tata, should either side be so inclined.

Chrysler, on the other hand, is deeply in debt, losing money daily, and – as a practical proposition – has no equity to exchange. (Remember, this is the company described as “operationally bankrupt” by its current CEO.)

But, selling out?

That’s what Cerberus always intended to do.

Watch this story.

Lienert’s been in the automotive journalism business for a very, very long time.

He’s picked up on something, something about which he’s not entirely confident. But, he still wants to be able to say that he wrote it first.

Selling Chrysler to Mahindra and Mahindra.

Think about it. Because, if you do, it ends up making a lot of sense.

There is no way that Chrysler, LLC would consider selling the Jeep brand. Jeep is the only brand the company owns that doesn’t have a reputation for poor quality. It is the only brand at Chrysler that has any glamour. Sure, it’s been getting hammered lately, as General Motors makes Hummer into an upscale competitor. But, the fact remains that Jeep is the one brand at Chrysler that actually has value.

Jeep has an international reputation.

It is one of the few brands that has the same meaning in every part of the world. The other two are Ford and Rolls-Royce.

Jeep is Chrysler’s only real asset.

This week, however, Chrysler’s been pumping out the press releases for the financial community. They’re going to cut the dealer network in half and drop redundant brands. They’re going to slim down the company and the dealer network, so that they “right size” the company.

Don’t be fooled.

Chrysler does not have enough money.

You can cut a dealer network in half in either of two ways. You can buy out half of the franchises, or you can persuade dealers to buy out each other. The former requires a lot of money. The later requires that your company have a future. Having a future, of course, generally depends on having a lot of money.

Mahindra, however, has a lot of money.

To get Chrysler, they need only do two things.

First, they make an offer that cannot be refused to the investment banks that are still holding $12 billion in bonds issued by Chrysler to finance the Cerberus buy-out, bonds which the banks have been unable to peddle even at deep discounts. Banks make money by selling money. Those bonds are tying up their capital. No reasonable offer will be refused, particularly since Chrysler stands an excellent chance of going under.

Second, they offer Chrysler an infusion of capital – the kind of capital that it takes to build new products – and they give Chrysler an entrée into the emerging Indian and South American markets. In exchange, Cerberus takes some money and goes away.

Bear in mind: Cerberus didn’t put any money into Chrysler. What it used to buy the company was money that it borrowed, money that – both technically and legally – Chrysler borrowed. Cerberus always intended to make the profit by pursuing the greater fool theory: selling the company and cashing out the debt with the purchase price.

But, Cerberus turned out to be the greatest fool – Chrysler was merely the frosting on the cake. The cake was buying control of GMAC from General Motors.

Now, Cerberus’s bankers and investors want out.

But, Mahindra wants in.

There are worse things than having a car dealer in every podunk in the United States. There are worse things than having a brand recognized throughout the world, and having engineering talent that is contractually entitled to draw upon the talents of Daimler, which still owns 20% of Chrysler, LLC.

To Toyota and General Motors, add Mahindra.

Twenty years from now, there will be three big international car companies.

One of them will still use the name “Chrysler.”

Ralph Kalal
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  (6021) posted on 02.13.2008

Mahindra is not the largest carmaker in India. It is just India’s largest utility vehicles maker. Maruti Suzuki Ltd is the largest carmaker in India. Tata Motors Ltd, is India’s largest vehicle maker.

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