BID FOR A GIANT AUTO MAKER : Ticker Shock : THE INDUSTRY : Chrysler Offer Raises Specter of a Worldwide Consolidation

Kirk Kerkorian’s surprise offer for Chrysler raises the possibility of a bidding contest among overseas auto firms wanting an alliance with Chrysler, in a worldwide consolidation of the auto industry, analysts and consultants said Wednesday.

Such bidding would be a tribute to the strength of Chrysler and of U.S. auto makers in general--as was the $55-a-share offer Kerkorian made Wednesday in concert with Chrysler’s famous former chairman, Lee Iacocca.

Chrysler, analysts agreed, is the world’s lowest-cost--and most profitable--producer of cars, light trucks, minivans and sport utility vehicles such as Jeeps.

“Chrysler makes net profit of $1,260 a vehicle,” said James Harbour of Harbour & Associates, a Troy, Mich., auto industry consultant and one-time Chrysler executive. “Ford makes $667 a vehicle and General Motors $125, but Toyota last year lost about $50 a car, and Honda lost $33 and Nissan lost $275.”

Meanwhile, most European car makers are in the doldrums because their costs are high and their markets growing slowly if at all. In fact, the world automobile industry is growing barely 1% a year--and slowing even from that snail’s pace. Such times are ideal for industry consolidation, analysts reason.

The thinking was that a Toyota of Japan, or Daimler-Benz, the German maker of Mercedes-Benzes, or Fiat of Italy would benefit from an alliance with Chrysler’s premier operations in the North American market.

Moreover, a foreign alliance with Chrysler would present few complications because the company--alone among the U.S. Big Three--has little or no overseas operations. It exports its highly popular Jeeps and minivans or ships parts from the United States and assembles vehicles in small factories in Austria, Malaysia and Venezuela. It has a budding joint venture to produce minivans in China.

But such analysis overlooks the possibility that Chrysler’s management may not welcome an alliance. The company’s chairman, Robert Eaton, has often explained that in today’s world, medium size and focused operations are the wisest course.

With tastes “fractionating in the market,” Eaton explained not long ago, “nobody produces plan after plan of the same car. Our size gives us flexibility; we don’t have a big bureaucracy like Toyota or GM.”

Chrysler, at $52 billion in annual sales and producing more than 2 million cars a year, is half the size of Toyota and less than a third the size of GM. But it is more efficient and profitable than either.

In fact, the company’s success raises questions as to why it is the target of a buyout offer.

“Normally when a buyer makes an offer for a company, there are inefficiencies that can be fixed and costs that can be cut to yield a turnaround and quick profit,” noted analyst Maryann Keller of Furman Selz Inc., a New York investment firm. “But that is not the case with Chrysler. It’s a lean and well-run company with excellent management and good products.”

The offer--at $55 a share, it is 40% above the price Chrysler stock closed at Tuesday night--was made to alert investors to the company’s value, Iacocca said, in hopes that other buyers would bid even more.

Foreign firms were seen as those other buyers; when he ran Chrysler, Iacocca tried but failed to form alliances--first with Volkswagen and then with Fiat.

Still, no foreign firms were stepping up to the plate Wednesday; Chrysler stock rose only to $48.75 a share.

That performance reflected the reason Chrysler stock was low to begin with: After three boom years, auto sales are slowing.

The Big Three were scheduled to report first-quarter sales and earnings this morning, and analysts said they expected the results to reflect a slowing market.

But the historic process that analyst Joseph Phillippi of Lehman Bros. termed “consolidation in the world auto industry” will be long-term. And experts point out strengths in Chrysler, particularly that it knows how to produce relatively low-priced cars for a mass market. “Chrysler made a three-speed automatic transmission for the Neon, while Toyota, Honda and Nissan add to their costs by putting in four-speed automatic transmissions,” explained consultant Harbour.

They could add such quality at an affordable price when the yen was 240 to the dollar, Harbour goes on, “but with the yen below 90, they’re now the highest-cost producers.”

And just as Japanese companies’ troubles with the strong yen are fundamental, so are the difficulties of German companies producing in high-mark Germany. That is why BMW has set up production in South Carolina and Mercedes Benz is building a plant in Alabama.

All those factors, plus the fact that Chrysler has built up more than $7.5 billion in cash as a cushion against an economic downturn, makes the company a tempting target, analysts say.

“The price of $55 is an insult; it’s worth $85 or more,” said one analyst.

But talk is cheap. The list thins when analysis gets to actual foreign companies who might want to buy all or part of Chrysler. And any overture from another car company--especially a foreign one--would invite tough scrutiny from the U.S. Justice Department.

The Japanese companies wouldn’t want to get involved in a public takeover battle, Toyota spokesman Eiji Hirabayashi said flatly Wednesday. “No. Definitely no. Generally speaking, Toyota and most Japanese companies do not (engage in) hostile merger and acquisition” activities, Hirabayashi said.

Said Aki Kato, a spokesman from Honda: “Our basic philosophy or policy is not buying out any companies.”

Meanwhile, of Europe’s auto makers Fiat, Mercedes or Volvo conceivably could raise the money. But analysts questioned that scenario as well. If Chrysler wanted an overseas alliance, “it could make an investment itself,” said analyst Keller. “They can do better for themselves than Kerkorian can do for them.”

So Wednesday ended with more questions than answers.

But one question could be answered in the negative: How would the disruption of this buyout help Chrysler produce better cars, pay better wages and earn higher profits? Said consultant Harbour: “Oh, I don’t think it will be any help at all.”

* Times staff writer David Holley in Tokyo contributed to this report.