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Auto Stocks Don't Ignite, Despite Merger Deals

The $38 billion merger of German automaker Daimler-Benz AG and US-based Chrysler Corp. comes as good news for shareholders and suppliers of the two companies.

But don't expect much new horsepower for stock prices of American carmakers.

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"US auto manufacturers have [done] a good job, consistently selling slightly over 15 million vehicles annually for the past few years," says Cynthia Latta, economist at Standard & Poor's DRI in Lexington, Mass.

"But despite that, sales are essentially flat. Cars are lasting longer. Overcapacity is a major problem," she says.

Exhausted auto industry

Phil Gott, DRI's auto analyst, says the US car market is "saturated" and will grow slowly over the next five years.

If you own US auto stocks in hope of substantial share-price gains, or large dividend payouts, you might rethink your strategy, Ms. Latta says.

The only certain market play within the auto sector, she says, will come from possible mergers, especially among partsmakers. But picking the right merger candidates is no easy task, even for seasoned market experts.

The DaimlerChrysler announcement came as a complete surprise to both Wall Street and the auto industry.

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And investor enthusiasm for the Chrysler deal barely carried over to other auto stocks. They only managed to "tag along" last week, notes Greg Nie, chief technical analyst at Everen Securities in Chicago.

For the year, auto stocks are up just slightly.

Some analysts, such as Joseph Phillippi of Lehman Brothers in New York, anticipate more mergers.

Indeed, on May 7, Britain's Vickers PLC said it would sell its Rolls-Royce Motor Cars unit to Germany's Volkswagen AG.

But not all analysts believe additional mergers will involve key companies.

Both General Motors and Ford already have their hands full integrating foreign carmakers into their corporate structure. GM, for example, owns Opel AG of Germany, Vauxhall in Britain, Holden in Australia, and 50 percent of Saab in Sweden. Ford's overseas positions include ownership of Jaguar and Aston Martin in Britain plus a controlling interest in Mazda.

Auto observers in Japan were quick to dampen speculation about mergers there. Many Japanese auto executives remain committed to keeping their companies independent.

Merger speculation centers on smaller regional players such as Fiat in Italy, Volvo in Sweden, and Renault in France.

German horsepower

Clearly, the German-US car link underscores the appeal of mergers to corporate shareholders. Chrysler stock, for example, had peaked near $46 in April - far short of the merger value with Daimler of about $59.

The agreement also signals eagerness by German firms to shop for US companies. Buoyed by high share prices and and a strong currency, German firms have the financial muscle to snap up US firms, experts say. The Chrysler linkup comes on the heels of the takeover of book publisher Random House by German publishing giant Bertelsmann.

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