DaimlerChrysler sells American LaFrance

http://www.americanlafrance.com/interior.asp?n=22&p=4&s=22&a=124

The hierarchy:

DaimlerChrysler Group (DCX) owns Freightliner, who makes the most popular heavy trucks in the US market. Until yesterday, Freightliner owned American LaFrance, the fifth-largest manufacturer of emergency vehicles--fire apparatus and ambulances.

Yesterday, DCX announced that they had finalized a deal to sell American LaFrance to the investment firm Patriarch Partners.

This is a weird transaction. Normally when you see things like this, the next thing you know all of the employees are out on the street. Not this time. On the face, it appears that the transaction was structured specifically to get American LaFrance out of DCX's Ladson, SC, facility so that DaimlerChrysler can build Sprinters there. (There are several American LaFrance factories.)

There's a slightly darker interpretation here. American LaFrance, as a manufacturer of emergency vehicles, sells almost exclusively to tax-funded entities. Large factories will have their own fire departments, and there are some privatized ambulance services that buy those vehicles, but for the most part their customers are, as Pigboy would put it, sucking on the public teat. Is it possible that DCX has no confidence in the ability of public entities to continue to buy emergency vehicles?

Of what it considers some dead weight. While the profit margin on emergency vehicles is quite high, they don't sell in many numbers during the year. Thus, while DCX might have been coming out with a $40,000 profit on each vehicle built, they're only building a few thousand each year. However if they turn that free factory space over to passenger vehicles, they will only realize perhaps $5000 per vehicle in profit, they'll be able to crank out hundreds of thousands. Thus, they feel that they are getting rid of dead weight.

Meanwhile, Patriarch Partners will be picking up what could be a growth business for them. America LaFrance is a well respected name amongst emergency depts. nationwide, and with an ever increasing need for emergency vehicles, PP could stand to make a pretty penny in what is a niche automotive market.

While your scenario is definetly possible, I don't think that it is probable. I think that it was a mutually positive deal, with DCX getting rid of a division it considered dead weight, and PP getting a fine niche market auto brand that will make good money for them.