CHRYSLER <C> MOVE CONTINUES TREND
Chrysler Corp is taking a small step
away from automobiles and towards military contracting with the
purchase of Electrospace Systems Inc <ELE>, analysts said.
    "A chief goal of Chrysler is to gain military business for
their Gulfstream planes and this should help that cause
dramatically," said analyst Gary Glaser at First Boston Corp.
    Chrysler, which bought Gulfstream Aerospace Corp in 1985,
earlier said Electrospace agreed to be acquired in a friendly
merger for about 367 mln dlrs.
    Analysts said the merger continues a trend in the
automobile industry of diversification away from carmaking.
    General Motors Corp <GM> paid about five billion dlrs for
Hughes Aircraft, an aerospace company, in 1985. A year earlier
it bought Electronic Data Systems, a data processing firm, for
about 2.5 billion dlrs.
    Meanwhile, Ford Motor Co <F> has added First Nationwide
Savings as part of a move into financial services.
    Ford, which has a huge stockpile of cash, has indicated its
interest in aerospace with Lockheed Corp <LK> once rumored as a
possible target.
    Both Ford and Lockheed have denied the rumors, according to
analysts. Ford has about 9.5 billion dlrs of cash and
securities on hand, one analyst said.
    "The overall strategic thrust (within the car industry)
is to become somewhat less sensitive to the vagaries of the
automobile sales cycle," said analyst Jack Kirnan at Kidder
Peabody and Co. "One way companies feel they can do it,
particularly GM and Chrysler, is by diversifying into
aerospace," Kirnan said. Ford has been "a little bit of a
laggard" in that area, he said, which has been a concern to
some investors.
    Chrysler's first big move away from autos came in 1985,
when it purchased Gulfstream for 637 mln dlrs.
    Defense analysts said Chrysler was paying a high price for
Electrospace but auto analysts regarded it as a modest outlay
for the company. Electrospace earned 10 mln dlrs on sales of
191 mln dlrs in fiscal 1987 ended April 3.
    Kirnan said Chrysler may have some trouble digesting the
Richardson, Texas, electronics firm because it is also buying
American Motors Corp <AMC> for about two billion dlrs in a deal
set to close later this year.
    "Chrysler will have their hands full absorbing AMC for a
year or more and will absorb a lot of debt," Kirnan said,
making them the most heavily leveraged auto company.
    But other analysts said the relative small size of
Electrospace will make it easy for Chrysler to absorb.
    Analysts also noted that Hughes has contributed
significantly to GM and that Gulfstream provided about 57 mln
dlrs in pretax earnings to Chrysler last year.
    In a statement, Chrysler said 92 pct of Electrospace's
sales were to the military.
    In addition to helping Gulfstream gain government business,
Chrysler said it believes electronics technology will help the
automobile business.
    Robert Miller Jr, Chrysler Corp vice chairman, said that
Gulfstream's business, for example, involves electronics,
composites and aerodynamic design. "Those will all be important
technologies for winning in the automobile business in the
1990s," Miller told Reuters. Electrospace should add
significantly to the electronics area, he said.
    Miller said Electrospace earnings last year were hurt by
one-time items and but should recover this year.
    Miller said cash on hand will be used to pay for
Electrospace.
    "They have a substantial presence in Washington with 150 or
more professional people. They also have accounting systems in
Texas to manage their business with the Defense Department," he
said.
    Both should be important in moving Gulfstream into the
military market. "Gulfstream traditionally has been aimed more
at the commercial market, which is a different kettle of fish,"
Miller said.
 Reuter
