Smart Buy?
DaimlerChrysler offers troubled unit to Italian motorcycle maker Piaggio

By LUCA CIFERRI | AUTOMOTIVE NEWS EUROPE

AutoWeek | Published 01/23/06, 2:03 pm et


Italian motorcycle maker Piaggio is considering an offer to buy DaimlerChrysler’s troubled Smart unit.

IMMSI group, Piaggio’s controlling shareholder, confirmed it was approached by Goldman Sachs, an investment bank D/C says it hired to filter unsolicited offers for Smart.

“Goldman Sachs contacted IMMSI group to gauge its interest toward a deal regarding the Smart brand,” an IMMSI spokesman in Milan told Automotive News Europe. “We have no further comment on the topic.”

But a person close to the negotiations told ANE that Piaggio – Europe’s largest motorcycle maker and a manufacturer of small commercial vehicles – is considering D/C’s offer.

Piaggio is not the only potential buyer. A source close to the matter identified India’s Tata group and Japan’s Suzuki as other prospects, although Suzuki’s top executive says the carmaker is not interested.

Smart spokesperson Bettina Singhartinter said: “Neither we nor DaimlerChrysler have any plans to sell Smart.”

The person close to the negotiations said Piaggio – for a “very reasonable amount” – was offered:

* The Smart brand

* Smart’s plant in Hambach, France, and all related tooling

* Smart’s intellectual property for existing and future vehicles, engines and transmissions

* A large, low-interest loan to help pay for a relaunch of Smart and to cover future operating losses.

It is not surprising that D/C is trying to sell Smart. Analysts estimate the small-car unit lost E600 million last year and has a cumulative E4 billion loss since its 1998 launch.

But the apparent generous terms offered to Piaggio underscore the difficulty of closing or selling an automaking operation in western Europe.

According to a source close to the D/C-Piaggio negotiations, if Piaggio took control of Smart, it would move production to India. But the companies are at a stalemate over which side would have to close Smart’s Hambach plant, the source said.

Costly operation
Several sources, all talking on condition of anonymity, confirmed that D/C is seriously considering selling Smart as an alternative to continuing running it at a loss.

“If you are looking for a partner, you do not need a merchant bank [such as Goldman Sachs,]” said a high-ranking executive of a multinational supplier. “In the auto business, everyone talks to everyone without any need for filters.”

D/C CEO Dieter Zetsche confirmed at this month’s Detroit auto show that the automaker had received unsolicited offers for Smart.

“In April, we said we would be open for potential partnerships [for Smart] as well. That hasn’t changed”, Zetsche said in an interview with Automotive News, ANE’s sister publication. “We told [Goldman Sachs] to look into it because there were some unsolicited requests and we said we don’t want to deal with them.”

Talking with Italian journalists at the show, Zetsche said Smart is not for sale and that D/C is just looking for cooperation. Zetsche reconfirmed D/C’s plan is to reach breakeven with Smart by 2007.

But D/C recently delayed an internal deadline of December to decide if it would launch Smart in North America.

D/C’s options include selling, closing or re-investing in the Smart brand.

Some analysts have suggested it may be cheaper for D/C to continue running Smart at a loss than to close it.

As described by the source close to the D/C-Piaggio negotiations, D/C’s offer is eerily like BMW’s 2000 sale of MG Rover to Phoenix Venture Holdings, a group of British entrepreneurs. BMW received just £10 in cash, but in return gave the buyers a £500 million (E728 million at current exchange rates) dowry to prevent an immediate collapse of the carmaker.

MG Rover collapsed in April 2005.
No interest from Suzuki
In Japan last Friday, Suzuki Motor Chairman Osamu Suzuki said he has “no interest” in buying Smart. “Smart is in trouble in Germany,” he said.

The concept behind the brand, he said sarcastically, was “too smart.”

Hirotaka Ono, Suzuki’s director in charge of overseas marketing, also said Suzuki has no interest in acquiring Smart.

Industry insiders say Piaggio is attracted by the industrial side of the Smart deal, which includes small, modern low-emission gasoline and diesel engines.

But Piaggio fears the social consequences of having to close the Hambach plant, especially the potential damage to relations with its unionized workers in Italy if it were to shut down a union plant in France and transfer production to a developing country.

But closing the Hambach factory may be inevitable.

“To turn Smart around you must shut down the very cost-uncompetitive Hambach plant, transferring production to a low-cost country like India or China,” an automotive consultant told ANE under condition of anonymity. “And you must use [processes] more like motorcycle than car assembly.”

 

If DC would take Smart to the US with the forfour model, I think it would sell great. Too bad DC won't take risks...


-Matt-

 

Doing that wouldn't be a risk, it would be stupid... Those cars are too small, crappy and ugly to be sold for the prices they are going for... BOO to Smart and I'm glad DCX is selling it...

 

LOL. I like it Forfour that is, not any of the other ugly models...



-Matt-