DETROIT -- As DaimlerChrysler AG shops the Chrysler Group, potential bidders are looking long and hard at billions of dollars in looming retiree pension and health care costs often buried beneath financial results the company highlights publicly.
When DaimlerChrysler reports financial results, it stresses operating profits or losses for each group, which do not fully take into account future retiree pension and benefit expenses.
But a note in the annual report provides a breakdown of the expenses, giving a glimpse of how difficult it will be for anyone to turn a profit with the automaker.
If future pension and retiree benefit expenses are included, the Chrysler Group's reported loss for 2006 would have been $3 billion, double what was reported in the operating results at a news conference Feb. 14 at the Auburn Hills, Mich., headquarters.
During the past five years, the Chrysler Group would have swung from a combined $2.27 billion operating profit to a $1.75 billion loss, according to figures in the annual report.
These pension and retiree benefit costs, set in United Auto Workers contracts over the decades, would be a challenge for any new owner, analysts say. They also make the chances of a deal more likely with a private equity firm than with an automaker, because those firms specialize in taking drastic actions to restructure financially troubled companies.
"The legacy costs are horrific," said Joe Phillippi, a longtime auto analyst and principal with AutoTrends Consulting in Short Hills, N.J. "To put a deal together, the buyers are going to have to make some heroic assumptions as to what they can do to fix all of this, which will include a substantial number of concessions."
The Chrysler Group is a division of DaimlerChrysler. Like most companies, DaimlerChrysler does not report as much detail on divisions as it does for the overall corporation. But notes to the annual report, analyst estimates and a closer look at General Motors Corp. and Ford Motor Co., which have similar deals with the UAW, offer a good idea of the legacy costs.
The problem has been compounded as Detroit automakers lose market share to Asian competitors.
GM, Ford and DaimlerChrysler all have designated funds to pay for these benefits. They estimate each year their obligations to retirees and report whether they have enough money in the funds to meet these future expenses.
