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As Chrysler helped pull Magna International Inc. back from the financial abyss more than a decade ago, Magna is now hoping to ride to the rescue of Chrysler, but it won't be a takeover.
Anyone who thinks the engineers and tool-and-die geniuses at Magna's head office in Aurora, Ont., are locked in a room figuring out how to transform the parts giant into Chrysler: The Sequel, can forget about it.
The discussions between the Canadian company and its largest customer, DaimlerChrysler AG, about the future of the Chrysler group are really about protecting Magna's franchise.
"Magna is in this to save their own bacon," said one industry source in Detroit who is familiar with the company.
Piling on the kind of massive debt that would be required for a takeover -- maybe $3.5-billion (U.S.), maybe $8-billion, pick a number -- is abhorrent to Magna chairman Frank Stronach, the company's management and a board of directors that remembers how close the company came to disaster in 1990 after a debt-fuelled expansion binge.
The upside potential of putting Magna that deeply in hock would have to be huge to convince Mr. Stronach to abandon the low-debt principle he has come to embrace, said one industry veteran who knows him well.
"We don't feel comfortable levering up the balance sheet," Magna's chief financial officer, Vince Galifi, said in a vast understatement during a conference call Tuesday on the company's fourth-quarter financial results.
The message Magna has sent to Chrysler is that it wants to help the auto maker restructure, and if that leads to different forms of co-operation or new partnerships, Magna would be happy to participate.
Chrysler helped revive Magna after its 1990 crisis by awarding Mr. Stronach's company the contract to make the seats for one of the most successful vehicles in auto history -- the Chrysler minivan. It's often described as the contract that saved Magna, and it kicked off a decade of fabulous growth for the parts maker.
What's much more likely than a takeover is an even tighter relationship between the two companies.
They're pretty close already. Sales to DaimlerChrysler represent about 26 per cent of Magna's $24.2-billion (U.S.) in annual revenue. Chrysler itself is about half of that.
Magna owns and operates a paint shop for Chrysler in one of the auto maker's assembly plants in Toledo, Ohio.
The parts company assembles minivans and Grand Cherokee sport utility vehicles for Chrysler in Austria.
Chrysler sold its New Process Gear engine-parts-making factory in Syracuse, N.Y., to Magna earlier this decade.
Magna is probably saying to Chrysler: " 'We're good manufacturing guys, we're running that paint shop in Toledo. We're good manufacturing guys,' " one source said.
There are more of those kinds of deals in the cards as the Chrysler restructuring unfolds during the next few months.
Magna could purchase more engine parts factories, maybe some Chrysler stamping operations, possibly an entire assembly plant.
All Chrysler assembly plants have Magna parts flowing into them every day and Magna engineers tramping through them regularly, so there's little need to do due diligence investigations of them.
Magna could end up managing Chrysler's assembly operations on behalf of a new private equity ownership group that has the cash to take over Chrysler, but not the expertise to run it.
Even if it doesn't take over an assembly plant, Magna could take on design, development and manufacturing of some new vehicles for Chrysler.
That would fulfill one of Mr. Stronach's goals, which is to duplicate Magna's vehicle assembly operations in his native country of Austria in North America.
The most likely spot to do that is Mexico, although Magna came close to building a plant in Ontario or Georgia last year that would have assembled convertibles for Chrysler.
Whatever happens in the Chrysler situation, Magna is a key player.
