Chrysler Exploring Sale of Technologies Unit : Auto Makers: The company hopes to shed its defense-oriented subsidiary and focus on building cars and trucks.
Chrysler Corp. said Wednesday that it wants to sell its Chrysler Technologies Corp. subsidiary, which includes its defense electronics and Gulfstream Aerospace aircraft businesses, to concentrate on making cars and trucks.
The decision to explore the sale comes as the auto market is softening, foreign competition is increasing and Chrysler is attempting to cut costs to remain competitive. Sales of Chrysler cars and light trucks for the year through Nov. 30 were 6.4% behind last year’s pace, reflecting an industrywide slowdown.
The nation’s third-largest auto maker said it had hired First Boston Corp. to advise it on the sale of Chrysler Technologies, all of which has been acquired since 1985. No timetable was set.
Chrysler also said Gulfstream founder and Chairman Allen Paulson is considering a bid for Chrysler Technologies and had resigned from the Chrysler board and taken a leave of absence from Gulfstream to pursue a possible purchase. Paulson could not be reached for comment.
Chairman Lee A. Iacocca, who said last month that Chrysler may have to cut $1.5 billion in costs, said Wednesday that the proposed sale of the Technologies unit is not related to a need for cash. “This is a strategic move that has been under consideration for some time,” he said.
Iacocca said the auto market will be fiercely competitive in the next decade and that Chrysler must prepare. “We intend to go head to head with the Toyotas and Hondas of the world as well as anybody else in the market,” he said.
Already this year, Chrysler has closed one Detroit assembly plant, announced cost cuts of at least $1 billion and stopped production of one subcompact car model.
But to counter weak domestic demand and increased foreign competition, auto analysts have said the Highland Park, Mich.-based auto maker must return to its core and sell off other assets.
Although Chrysler Technologies accounted for a relatively small proportion of the parent company’s overall earnings, analysts said the businesses had been acquired as a way of helping diversify out of the cyclical auto industry.
Chrysler Technologies is made up of Gulfstream, which was acquired for $637 million in 1985; Electrospace Systems Inc., a maker of defense and electronics products and systems that Chrysler bought for $367 million in 1987, and Airborne Systems Inc., formed last January by combining the military aviation-related functions of Gulfstream and Electrospace.
Gulfstream accounted for most of Chrysler Technologies’ $1.3 billion in revenue last year, said John Stellman, a spokesman for the subsidiary. The unit posted a pretax profit of about $149 million in 1988 and had projected earnings of about $121 million this year. Chrysler Corp. had net income of $1.05 billion in 1988 on sales of $35.5 billion.
Gulfstream has about 5,000 workers, Electrospace has about 2,000 and Chrysler Technologies Airborne Systems has about 1,300. On Oct. 1, Chrysler began a program to slash at least $1 billion from its budget by year-end 1990, including the elimination of about 8% of its white-collar work force.
In late September, Chrysler sold about half of its stake in Japanese auto maker Mitsubishi Motors Corp., gaining about $310 million after taxes.
Analyst Mary Anne Sudol, of Fitch Investors Service Inc. of New York, said the decision to sell Chrysler Technologies was sound and “since they bought it, the world has changed.”
“In the current thawing in the Cold War and the anticipated cuts in defense budgets, an operation like that, which is small relative to Chrysler’s size, makes less and less sense.”
But some analysts complained that the announcement came too late.
“It’s too bad Chrysler didn’t make this decision six months ago, when Chrysler Technologies was worth more,” said Ron Glantz of Montgomery Securities in San Francisco.
He said the value of the defense unit has declined as East-West relations have thawed and that the aircraft group has suffered a decline in its order backlog.
Chrysler stock rose 12.5 cents to $19.125 a share Wednesday on the New York Stock Exchange.
