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With Chrysler Group losing $1.5 billion in 2006, DaimlerChrysler (DCX – 82.00) spent the last several months shopping its dangling domestic appendage to anyone willing to take the flagging subsidiary off its hands. While several firms have answered the bell, Canadian auto parts maker Magna International (MGA – 83.92) stepped to the forefront after selling off $1.54 billion worth of its voting shares to Oleg Deripaska and his holding company Russian Machines. Analysts tell us that the transaction opens the door for Magna's expansion into the burgeoning Russian auto market and sets the stage for a $4.7 billion offer to buy 50% of Chrysler. If the deal goes through, Daimler will retain 10% of Chrysler while Magna and Canadian investment firm Onyx will pick up the rest.

So what's in store for the aforementioned corporations? DaimlerChrysler did just fine despite Chrysler's losses and should do even better after dropping the dead weight. And despite the discouraging figures from '06, Standard & Poor predict that Chrysler's credit rating should match and may even exceed General Motors and Ford. In the short run, you should probably stay away from Chrysler and its plan to scale back production and cut 13,000 jobs in the U.S. and Canada. In the long run, the change of scenery and the optimistic outlook on Chrysler's ability to pull itself back up by the bootstraps should do some good for the house that Iacocca built.

As for Chrysler's Canadian suitor, Magna presents an intriguing investment option on the NYSE and on the Toronto Stock Exchange after its transaction with Russian Machines. Foreign car sales in Russia almost doubled from 2005 to 2006 and PricewaterhouseCoopers recently predicted that Russia could develop into Europe's second largest automobile market by 2010. In addition, having an established name like Chrysler in the fold would help Magna tap into a potential windfall.

When it comes to handicapping the race for Chrysler, Magna has just as good a shot as anyone else. Factors working in Magna's favor include Chrysler's status as its top customer and the fact that the $4.7 billion bid would trump the next highest announced bid of $4.5 billion made by investor Kirk Kerkorian last month. However, sources report that Magna simply made the offer for the chance to buy Chrysler at a significant discount if higher bidders dropped out. Both assessments make sense. Personally, I think Magna wouldn't have gone to all this trouble if it didn't intend to make a serious run at Chrysler. The two companies feel comfortable dealing with each other and in Chrysler's case, beggars can't afford to be choosers. In any event, Magna, Chrysler, and Daimler all look to benefit if Magna emerges victorious in the impending bidding war for the junior member of the Big 3. Magna chairman Frank Stronach said that he expects an answer within the next few weeks.

Disclosure: I do own a mutual fund that may contain one or more of the stocks mentioned in this post. However, any interest that I may own is subject to the discretion of my mutual fund manager.

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