By Leow Ju-Len

How much would you pay to own the Mercedes-Benz brand, that venerable cornerstone of German automotive excellence? It’s pretty tough to put a price on a nameplate with probably the richest heritage in automotive history, isn’t it?

But let’s sweeten the deal by throwing in the rights to more motoring names, like Chrysler, Dodge, Jeep, Smart and Maybach. The first two brands in that group are getting increasingly popular in America, as we’ll see, and there’s huge potential for Smart, which stands for cheekiness and hip urban mobility in almost all of Europe. Jeep’s off-roading credentials are as established and well-known as Land Rover’s.

As I write, DaimlerChrysler is trading on the New York Stock Exchange for US$45.84 per share, valuing the whole company at a little under US$47 billion. The fascinating thing is that the company has a book value (or net tangible asset value) of US$44.26 per share, which means DaimlerChrysler’s ‘goodwill’ value currently amounts to just US$1.58 per share.

BRAND VALUES
Let’s clarify that. DaimlerChrysler’s tangible assets like cash, factories, inventory, net receivables and everything its owners and creditors would get if the company were liquidated, are worth US$44.26 per share.

The value of the company as a going concern – its business activities, research, patents, reputation, management ability and the value of all those wonderful brands, comes up to a paltry US$1.58 per share.

I don’t know about you, and I’m not a professional stock picker by any means, but that sounds awfully cheap to me. On the NYSE, Toyota sells for about US$31.55 above tangible assets per share, and Honda about US$10.55. With DaimlerChrysler, you can expect to pick up a decent 3.27 percent dividend yield for buying the shares, too.

Sure, General Motors looks even cheaper than DaimlerChrysler, trading at US$12.06 below its book value per share.

But GM has just announced that it expects earnings to fall next year, has about three months’ worth of unsold inventory at home, persistently loses money on its car businesses in the US and in Europe, and is currently engaged in messy proceedings with Fiat about avoiding having to buy the Italian automaker, a divorce-before-marriage that could cost the Americans hundreds of millions dollars.

Contrast that with the story at DaimlerChrysler. The company no longer has to show losses from Mitsubishi after its stake has been diluted by the Japanese company’s decision to issue more shares. Except for Smart, which has never made money, DC’s car businesses are profitable and are probably going to get more profitable.

The Chrysler Group is on a roll, as the only American car company to gain market share at home last year, and the only one to actually make money. The smash-hit Chrysler 300C takes a lot of credit for that, while the recently-launched Dodge Magnum and Dodge Charger models are getting hugely positive press reactions.

MODEL BEHAVIOUR
Chrysler’s chief executive is Dieter Zetsche, a lifelong company man who understands that it takes strong products to build a strong car business. After launching a record nine new models in 2004, Chrysler has more to come, he said at the Detroit auto show.

“In 2005, we’ll bring the new Dodge Charger, the Jeep Commander and at least three more vehicles to the market. Then, in 2006 we’ll aim to break the record for new vehicle launches we set last year. And our product pipeline beyond 2006 will also be full,” said Zetsche. “We’re not going to let up.”

That’s particularly interesting to stockholders, because after Daimler-Benz merged with Chrysler in 1998, it was the American automaker’s stubborn losses which dragged the newly-formed group’s share price down for years. Essentially, that left Mercedes-Benz to support the group, so the fact that Chrysler is now pulling its own weight can only be good news for the stock.

Mercedes-Benz, in fact, has a bit of catching up to do in that respect. DaimlerChrysler’s last quarterly results showed that Chrysler’s earnings actually exceeded those of Mercedes, but the German marque puts this down mainly to non-recurring events.

The company has been spending money to address quality issues after slipping down a number of reliability survey tables. It’s also been busy with new-model rollouts, which are costly.

Last year saw the launch of the revised C-Class, the new SLK-Class, the CLS-Class and the new A-Class. The M-Class has just premiered at Detroit, and still to come are the B-Class and R-Class, with an all-new S-Class making an appearance at the Frankfurt show in September.

The bottom line is that Mercedes has been quietly slogging away in preparation for a period of expansion, and earnings are likely to improve once the products that drive them are out in the market. Take a look at the upcoming products again; do you honestly expect Merc’s new baby for the American market (the B-Class), a sporty six-seater crossover (R-Class) and the new flagship limo (S-Class) to flop?

TAKING STOCK
When a company has great brands, great management and stronger earnings ahead driven by an expanding product line, why should it sell for a measly 3.57 percent above its book value?

Beats me. The stock market seems to dislike car stocks in general because the industry is mature, capital intensive and more competitive than ever. But let’s not forget that the world is going to need cars until someone invents a teleportation device.

And even if tomorrow’s cars turn out to be unrecognisably different from today’s, does anyone honestly expect the likes of Mercedes-Benz and all the brands in the Chrysler Group to just go away?

I’d be willing to bet not. Especially since that wager currently costs just US$1.58 per share.
[The writer does not own shares in any of the car companies mentioned.]