No one likes a quitter, but DaimlerChrysler (NYSE:DCX) is doing the right thing in pulling back from its Asian joint ventures.
The automaker's decisions to cease financial support for Japan's Mitsubishi and sell its 10.5% stake in Korea's Hyundai Motor certainly are not suggestive of a corporation in ascendance. But the steps are necessary, albeit painful, in the face of the firm's difficulties.
As fellow Fool W.D. Crotty has written, the company is laden with debt, and its interest in Mitsubishi has been hurting net income. DaimlerChrysler's stake in the troubled Japanese firm will likely continue to plague its bottom line, but at least the cash hemorrhage will stop. And though the reported $1 billion DaimlerChrysler will pull in from the sale of the Hyundai stake is only a drop in the bucket in the context of overall operations, it's a start.
There's little doubt that the German-American titan still has plenty of cleaning up to do, but if it can continue to rationalize operations, there are possible positive catalysts. The company's recently released Chrysler 300 had an impressive debut in April, with sales of 9,543 units. In addition, the diesel version of the Jeep Liberty will be available in the U.S. later this year. The new truck's fuel efficiency (diesels improve fuel economy an average of 25%) could be a strong selling point, although DaimlerChrysler will surely have a challenge convincing Americans to adopt diesel fuel.
Rising interest rates and gas prices could have a chilling effect on the automotive industry in general. But if consumers become convinced that an economic recovery has taken hold, auto sales should benefit. In that case, DaimlerChrysler may see some acceleration.
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Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
