Daimler eyeing Fiat, Honda?
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November 24, 1999: 5:18 p.m. ET
Analysts discount German reports that carmaker looking elsewhere than Peugeot
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NEW YORK (CNNfn) - U.S. auto analysts discounted reports from Europe Wednesday that DaimlerChrysler AG may be looking to Italy's Fiat or Japan's Honda Motor Co. instead of its long-anticipated link with PSA Peugeot.
Daimler officials told analysts at Deutsche Bank as recently as last week that they still are focused on Peugeot and they have no interest in a purchase of Fiat, said Rod Lache, analyst at Deutsche Bank's U.S. investment bank, Deutsche Bank Alex Brown.
"They've been telling us explicitly that they haven't decided on what their small car strategy is going to be," said Lache. "But they said their discussions with Fiat have not been on the basis of a merger, and that PSA is still their preferred partner."
Daimler has made no secret of its desire to expand in the small car market through acquisitions or alliances after its own products in the sector met with muted customer demand.
German press reports this week said Fiat would supply Daimler with a range of components for a new version of the Smart car, with the German-American company taking a stake in Fiat.
Fiat described the reports as "baseless." DaimlerChrysler refused to comment.
"We never comment on any rumors or speculation. Nothing has changed on this position," said DaimlerChrysler spokesman Juergen Wittmann.
Meanwhile, the German business weekly Wirtschafts-Woche reported that DaimlerChrysler co-chairman Juergen Schrempp would prefer to buy Honda, rather than either Fiat or Peugeot. It said the company might even use the Honda motorcycle engine in its diminutive Smart car, and that talks could begin early next year.
But analysts said that there is no reason to believe that Honda would change its long-held stance that it wants to stay independent.
"Financially, their product line is reasonably successful," said David Garrity, analyst at Dresdner, Kleinwort & Benson in New York. "There would be no kind of distress sale as there was with Nissan and Renault. Honda can pick something in their own time and place."
While Honda is looking for a way to enter the European market, DaimlerChrysler's Mercedes dealers are not an effective way to do so, both Garrity and Lache said. Garrity said that German press accounts of these kinds of business deals are notoriously unreliable.
"This is very much rumor mongering," he said.
Analysts in Europe suggested that the German firm would be weakened by a deal as it struggles to integrate the Daimler and Chrysler organizations.
"DaimlerChrysler has bitten off more than it can chew. The worst thing it can do now is to take another bite," said Peter Schmidt of consultant Automotive Industry Data.
Daimler had been negotiating with Peugeot to share components for a new small car based on the French company's 206 model. However, Peugeot, which is an exchange-listed company but controlled by a family trust, has balked at selling a stake to Daimler.
While sales of Daimler's small A-Class car have picked up after a disappointing start, its Smart car has continued to be dogged by problems and slow sales.
Fiat has struggled with falling market share and is keen to develop another revenue stream.
Schmidt said a deal with Fiat also could founder on the issue of control. Fiat's owners are unlikely to cede control of the company, while Daimler may want a majority stake to push restructuring at the troubled Italian automaker.
While Fiat's share of the small car market has slid under pressure from rivals Volkswagen (FVOW) and Ford (F), its engineering skills are well regarded.
"Fiat has a lot going for it in terms of design, technology and efficiency," said Schmidt.
Shares of DaimlerChrysler closed Wednesday at 70-15/16, down 9/16, on the New York Stock Exchange. In trading in Germany shares fell 1 percent in morning trading after having climbed more than 2 percent Tuesday when reports of a Fiat link first appeared. Fiat shares opened 2 percent higher but slipped back to trade flat. Peugeot stock was 1 percent weaker.
By midday Thursday in Tokyo, Shares in Honda Motor Co. had jumped nearly 6 percent on the amid speculation.
-- from staff and wire reports
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