Hyundai Denies Interest in Chrysler

Well that was fast. No sooner had we prognosticated about future product synergies between Hyundai and Chrysler, based on a Reuter’s report about Hyundai’s rumored interest in the troubled Auburn Hills brand, and it’s over.

Hyundai has flat-out denied any involvement in talks with Chrysler, and more so has stated that they have no interest at all.

Interesting, however, is the Korean company’s statement that they are entertaining the possibility of constructing new plants overseas. But why construct new ones when full plants with skilled workers may be available at a fraction of the cost?

Selling off such assets may be a last resort for automakers reeling from the recent auto market slump, and cash-rich manufacturers might be able to walk away with some timely deals.

Those relying on credit, however, which would be the majority of suitors for Chrysler, are limited in their borrowing power and therefore unable to step up and purchase such plants, or even Chrysler as a whole, even if they wanted to.

Nissan’s deal for 20-percent of Chrysler is still a viable option that Cerberus may move on if no other suitors come into play, but this would require splitting up the three-brand carmaker. While devastating to its workers, such a major shift in the auto industry doesn’t set any precedents. We’re just quickly moving back to the more unstable times of the auto industry’s formation, when ownership of brands often divided and changed hands.

Still, there are rays of hope in Auburn Hills. Despite our optimism of what a Hyundai-Chrysler deal could have looked like to benefit Auburn Hills, Reuters was saying the Korean company was only interested in Jeep and would slice up the brand and sell off the other assets, which could potentially destroy the Chrysler brand and most likely slim down Dodge to the Grand Caravan and Ram truck lineup. Not a happy scenario for Chrysler or Dodge brand fans or the company’s employees. But with all this talk about takeovers, does Chrysler need “saving” at all?

On the contrary, President-Elect Obama has been in talks with President Bush about hastening aid to the Big 3, which would have to include Chrysler, as well as Ford and GM. While Cerberus may have soured on the car industry, it is likely that it will be interested in billions of free cash if few strings are attached to how it gets spent, other than maintaining the car company as best it can. It will already be receiving its portion of a $25 billion fund designed to expand environmental initiatives within the American automakers, money that may not have to be targeted towards green technologies after all, according to an Automotive News report that came out yesterday. The same report added that another $25 billion may be pulled from the $700 billion bailout plan and given to the Big 3, to help keep America’s automakers in business and hopefully autoworkers working.

Being a private company, it is unknown how much money Cerberus is burning through on Chrysler’s behalf. All we have to go on is the $11-plus billion Auburn Hills reportedly had in reserves while GM was negotiating to take over Chrysler, but a recent statement by Chrysler spokeswomen Laurie McTavish indicated that it was suffering in similar ways to its domestic rivals. Therefore it’s difficult to say how long a government bailout will sustain the automaker, but it is expected to be losing less than GM’s 2.3 billion in three months. Such a bailout could be exactly what Chrysler needs if Cerberus is willing to put itself back in the ring and try to build a carmaker. If it can ride out this storm, if fuel prices remain lower than they have been and some liquidity returns to the lending markets, it may just not need to be sold off at all.