"Are we bankrupt? Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with." Another milestone: Chrysler CEO Bob Nardelli used the “b word’ in public. What’s more, Boot ‘em Bob told the Wall Street Journal (WSJ) that he’s on a leash so short he can feel the hot breath of his Cerberusian owners tickling his neck hairs. Why’s that then? Because all Hell's about to break loose.
More specifically, Chrysler is about to follow GM and Ford’s lead and break loose anything that isn’t nailed down and sell it. This forthcoming “Staving Off Bankruptcy” sale should come as no surprise; this fall, Nardelli announced his intention to flog bits of the biz just after Christmas. His “operationally bankrupt” shocker is PR hyperbole, preparing Chrysler's camp followers for the divestiture to follow.
Saying that, Nardelli's “backs up against the wall” spin is a double bluff; or, if you prefer, the truth. Chrysler really is “operationally bankrupt.” Have a look at their new product plans. What product plans? Well, exactly.
While $10b is a lot of money for you and me, that’s the amount of cash GM needs just to keep the lights on. Ten billion bucks ain't enough money for Chrysler to make the long-term investment in the new product designs and technology it needs to compete for the American car buyer’s customer AND keep the company going. Period.
So what? That was never the plan. Chrysler’s new owners didn't have any intentions of investing their hard-earned money in the bottomless pit known as a product-lead turnaround. Whether or not Cerberus planned to keep the Chrysler dealer network as a kind of K-Mart store front for outsourced products, Cerberus' purchase was all about stripping and flipping.
That’s why the smartest guys in the room installed Nardelli, who’s about as much of a car guy as I am a numismatist. The Home Depot despot was charged with cutting costs and stabilizing the company until such time as it could be sold; which was to be sooner, rather than later.
Unfortunately, the private equity boys knew sweet FA about cars. They failed to realize that Chrysler’s German owners had left behind a mortally wounded automaker. Perhaps the incoming execs were dazzled by the new minivan and upcoming Ram, or the company’s total turnover. But they didn't understand that carmaking is a consumer-driven– not cost driven– business; an enterprise whose survival depends entirely on brand strength and an endless stream of class-leading products.
Cerberus never imagined that Chrysler would get this bad this fast– because they didn’t know cars. Nor did they clock the fact that the overall U.S. new car market was headed dramatically south. Cuts or no cuts, bad intelligence and bad timing have destroyed any possibility of stabilization in Auburn Hills.
Needless to say, none of this does anything more than accelerate Cerberus’ original time lines. Nardelli will continue to wield his axe even as he begins the inevitable process of dissolution. To that end, the Chrysler CEO told the WSJ that “the company will move very aggressively to dispose of about $1b in land, old plants and other assets, even if it has to sell them below book value.”
Don’t be fooled by the implications of that list. The only thing Chrysler has to sell that’s worth a damn are its MOPAR parts operation, its production facilities and the Jeep name. The “book value” of these “assets” is a Hell of a lot less now than it was when Cerberus bought them, and falling. Given the dizzying pace of vehicle production technology, unless the Chinese, Indians or Canadians (Magna) want to buy Chrysler’s U.S. production facilities, they're worthless.
Where does that leave Chrysler? Nowhere. Ten billion dollars isn’t enough to do anything more than pretty-up their current products’ dreadful interiors ("260 line item improvements") and help the automaker hold on for another year or so– albeit cutting every step of the way in the face of diminishing market share. Meanwhile and in any case, Chrysler will either sell itself to someone “below book value,” or its private equity masters will throw in the towel and file for Chapter 11.
If we had any doubts before, Nardelli’s "operational bankruptcy" remark leaves no doubt that Cerberus is prepared to cauterize its Chrysler wound and use Chapter 11 to amputate the automaker from its portfolio. Cerberus will hive off Chrysler Financial, take their tax write-off and call it a day. And consign one of America's greatest automakers to the scrap heap of history.
Well, if this happens it makes their “Lifetime” Powertrain Warranty not so “Lifetime” doesn’t it?
I’m shocked that Nardelli actually came out and said it. The situation must be truly dire. Dodge and Chrysler will make lovely fronts for a Chinese company.
So does this mean the firesale might get even better or are they going to superfleet the lots full of unsold cars.
Their lifetime warranty was meaningless weather they stayed in business or not, just means your standard warranty might end quicker than you think. Man that would suck for new Sebring owners.
A car company facing ever-increasing competition with a line of lackluster, outdated vehicles that desperately need a makeover, but there is only money for minor facelifts and spiffier interiors. The only really solid vehicles in the line-up are Jeeps.
Chrysler in 2007…or AMC in 1977?
This all sounds depressingly familiar.
I think Cerberus was trying to do their strip and flip as slowly as possible to avoid bad publicity but it’s time to throw all that out the window and get down the business. I hear the Chinese are looking for a few good car plants, preferably with file cabinets full of past design drawings.
Bloody hell, I don’t think people realise how serious this is!
Let’s take a look at this picture:
Detroit have got inflexible unions, making cars very few people want and relying on home customers to buy them. Slowly, but surely, the imports are taking over and Detroit are selling off whatever they can to survive whilst asking for subsidies from the government.
Meanwhile, an american carmaker has just has a messy divorce from its German wife (who couldn’t make her husband into a workable human being) and is pretty much left for dead. It has virtually no assets, no brand cache, no new products and virtually no equity. In fact, a slow painful death is the only thing the car maker has to look forward to.
Aren’t these scenarios British Leyland and MG “The English Patient” Rover redux?!
Back to point.
It really looks bad for Chrysler, if Mr Nardelli can’t think of anything positive to say about them, you know trouble is ahead. The only bit which is baffling me is why did Cerberus buy into Chrysler, if they knew turning a profit was going to be tricky? I mean, they’re trying to strip and flip now and the prognosis still isn’t good!
I can’t speak for North America, but in Europe Chrysler’s line-up is woeful:
A bunch of SUV’s which are difficult as hell to sell due to strangling EU legislation.
300C sedan, which is rarer than a rickshaw on European roads.
The Crossfire, a poor-man’s Mercedes-Benz SLK and a REALLY poor man’s Porsche Boxster.
The Voyager which is still the only mainstream car still being sold on European market which achieved an NCAP safety rating of 2 STARS (Lowest rating of any car being sold on European roads)! Even a Proton Impian (Malaysian car) scored 3 stars!*
We can’t even argue that Chrysler should bring Euro-Chryslers to North American, because they’re just as poor!
They only have 2 options left:
1. Sell everything they can and hope for a miracle (a Camry/Accord killer)
or
2. Use the $10 billion on lottery tickets and hope for the best.
I reckon they’re better off with option 2…….
* = http://www.euroncap.com/tests/chrysler_voyager_2007/277.aspx
Katie:
Thanks, had no idea that the RHD Voyager did so much worse than the LHD version. Perhaps the 2008 RHD Dodge Journey and Voyager will fare better.
Who else is shopping for a carmaker these days? Ghosn? Kerkorian? (hah!) Bricklin? (hah! x2 but Cerberus is going to be desperate)
Chrysler does have an Camcord killer – it’s called the Sebring / Avenger (at least that was what they were hyping long before they’d let anyone see it up close let alone drive it).
KatiePuckrik: Detroit have got inflexible unions, making cars very few people want and relying on home customers to buy them.
I have to disagree with this. While I’ve been critical of the UAW in the past, the bottom line is that the union did display flexibility in the latest round of negotiations. GM initially said that this contract eliminates the transplants’ cost advantage, although later this was amended to “about 75 percent of the transplants’ cost advantage.” GM, it seems, never changes.
The simple fact is that Chrysler’s problems now have very little to do with the UAW. It is now painfully obvious that Daimler had absolutely no clue how to compete in the mainstream American market.
My maternal relatives are German, so I can understand how this happened. Germans think all American cars are crappy, and they look down on Japanese cars. So, they probably thought that they could get away with selling unattractive, cheap cars to local yokels who didn’t know any better…completely underestimating just how good Honda and Toyota, and to a lesser extent, Mazda, really are. They also probably didn’t believe that Ford and GM really would begin improving their vehicles.
Bottom line is that I don’t see Chrysler existing in its present state within five years. Chrysler and most likely Dodge cars will join Imperial, DeSoto and Plymouth in the history books.
The Cerberus deal always struck me as a cynical play.
Private equity and cyclical businesses like auto manufacturing don’t belong together.
Cashflow is king, to pay the interest on the junk bonds.
During a downturn the cashflow is negative, so now what?
Shut down manufacturing.
Wonder what VW is thinking, given those plans afoot to have Chrysler build their minivan for the US market. Could this be a new path for Chrysler–an outsource? Heh.
If you thought it was bad under the German’s, it is really bad under the three headed poodle.
CTC may finally be a shopping mall.
The only assets worth selling are Jeep and Chrysler Financial.
With nearly 50% of their sales to fleets, they have already given up on the consumer market.
Chrysler is toast.
# Zarba :
December 21st, 2007 at 6:08 pm
The only assets worth selling are Jeep and Chrysler Financial. With nearly 50% of their sales to fleets, they have already given up on the consumer market. Chrysler is toast.”
Zarba,
Fleet sales are only at 30%, if you believe Chrysler. Lets see, last month sales were off 2% and retail sales were off 16.9%, but they reported that fleet sales are declining…
I am by no means a math major, but if retail sales are down more than the overall volume, were did the rest of the product go?
Step one – sell jeep, sell chrysler financial, sell all the crap they have laying around.
Step two- pour EVERYTHING penny they have into the next sebring (outsource all design work to Audi)
Step three- cut the line up to this
DODGE
Ram
Sprinter
Caravan
CHRSYLER
300c
NEW amazing super good Sebring
Step 4- Cross fingers, toes and all other limbs/extremities that can be crossed
I read the WSJ piece this morning. It was eye-opening and sad.
I have fond memories of a friend’s Dodge Diplomat that wouldn’t die. And any truck company that offers a manual 6 speed with an inline-6 diesel can’t be all bad.
I thought there were actually 2 “fleet” sales #s.
The most common # is what the MFGR sells directly from their factories to commerical and consumer fleets. IIRC these are the reported fleet sales #s and what I think the 30% measurement is for Chrysler.
The more telling fleet #s which are reported are the units that were shipped to dealers but the dealers negotiated fleet deals with local companies but on a smaller scale. These are retail consumers but businesses buying cars for the cheap deal. These fleet cars are not considered in the first # b/c they were shipped to dealers and considered “retail” for their purposes even though they did go to fleets. I think Chryslers real fleet sales are somewhere up nears 40%-45%.
So GM/Ford/Chrysler now reduce outright fleet sales but the dealers are taking up a lot of the slack just to get hardware off the lot.
It seems the smartest guys in the room outsmarted themselves.
“Dodge and Chrysler will make lovely fronts for a Chinese company”.
I keep seeing this, but I don’t think so. The Chinese are looking for wealthy, successful franchisees to move their metal. They don’t need the
real or perceived overhead associated with a failed
manufacturer. Remember Renault buying into AMC?
Why can’t Chrysler become the “all fleet car, all the time” manufacturer? The product can be miserable but if its cheap enough it’ll sell. Maybe they can do some contract manufacturing for other manufacturers on the side too.
Chrysler seems well-positioned for this role. The Sebring is a rental car masterpiece.
The partnership with the Chinese is already a done deal. Once they have a car that will pass US regs they’ll bring it out of Mexico and into Detroit showrooms.
I have never been in the strip-and-flip camp on this one, and I remain in a different campground.
I didn’t interpret this article or Nardelli’s statements in the same way. Rather, I think that this is a prelude to the next stage: the outsourcing of major functions that have traditionally been maintained in-house by automakers. Which means massive white-collar layoffs to a degree that are probably unprecedented in the auto business. And I’m sure that whatever happy talk was fed to the employees by Cerberus and the gang never mentioned the possibility of cuts like these.
My guess is that functions such as R&D and design are going to be largely outsourced to outsiders. They may go further, and get these firms to partner with Chrysler Group to bring models to market, individual investments in which they bring their skills to the table, perhaps with some inclusion of a cash investment and/or free labor, in exchange for a split of the revenues or profits from the vehicles with which they assist.
There’s nothing here to strip-and-flip. If Cerberus can’t make Chrysler profitable, then it will lose money on the deal. The only reason that Cerberus would dump it quickly is if the original plan failed and it had no choice but to cut the bleeding.
Since Chrysler can’t afford to develop new products they are going to have to do as I’ve been saying … just become a distributor of other people’s stuff.
Watch the Nissan-Chrysler truck deal closely. I think Chrysler will end up selling it’s truck assets to Nissan then buying back finished goods from Nissan. Ghosn wants to expand, Nissan USA isn’t unionized and Nissan has a strong start in India.
Chrysler has a great V-8 engine factory in Mexico building Hemis. Nissan has a low volume V-8 design for it’s trucks which is probably costly to build in it’s small volume. Chrysler could either sell the Mexico factory to Nissan or could just sell Nissan engines.
It ain’t over at all!
From Chrysler blog: Robert Nardelli Responds to Media Reports Posted Dec 21, 2007, 05:33 PM by Robert Nardelli Category: Business Chrysler Chairman and CEO Expresses Confidence in Chrysler’s Operations, Products, Finances and Employees * Long-term support from Cerberus Capital Management, L.P. and Daimler AG Auburn Hills, Mich. – “There have been several recent media reports that have painted an inaccurate picture of Chrysler LLC’s current financial position. Therefore, the management of Chrysler and our parent company, Cerberus Capital Management, L.P., felt it imperative to correct the record since such misinterpretations and misperceptions are misleading and could leave the wrong impression in the minds of investors and other interested parties. First and foremost, it is important to note that Chrysler is not only meeting, but, in many cases, exceeding its financial targets heading into 2008. Importantly, Chrysler has ample liquidity. We are fully funded with working capital to meet our present and future needs and objectives. We are doing what any other prudent company is doing during this challenging economic environment. We are trying to instill a sense of urgency throughout the workforce, putting our capital to work effectively and efficiently, streamlining inventory, improving current products and developing new and innovative vehicles. Our dealer body is quite pleased that our inventory of vehicles was down another 4 percent in November. In a 13-hour meeting this week with the Cerberus board of directors, Cerberus praised and was highly complimentary of Chrysler’s progress to date and unanimously approved our 2008 plan. We have a solid strategic direction to return the company to long-term profitability. We are on target and have the unwavering support of Cerberus, as well as our other key partner, Daimler AG. Cerberus met with its investors last Thursday to share the progress that has been made and to convey to these investors that the company was meeting – and in many cases – exceeding – its targets. The report was well received. Like many companies in today’s uncertain economic environment, Chrysler is moving aggressively to improve its business. We recognized in advance the increasingly competitive vehicle market heading into 2008. With that, we have been moving aggressively to make our company leaner. The steps we are taking include previously announced volume-related reductions at several North American assembly and powertrain plants and the elimination of four products from our lineup, which is very customary in the auto industry. However, we are very excited about the new products coming in 2008. These include the legendary Dodge Ram pickup truck, the Dodge Journey crossover, the relaunch of the historic Dodge Challenger – which has already generated 8,851 customer orders – and two, all-new, large hybrid SUVs, the Chrysler Aspen and the Dodge Durango, demonstrating our support for the environment and more fuel-efficient vehicles. For our current vehicle line-up we have already approved more than 260 line item improvements to enhance our products – most for the 2008 calendar year. The recently completed national labor agreement with the United Auto Workers – which includes the establishment of an independent retiree health care trust – provides a framework to improve the long-term competitiveness of the company. Since August and the first day of the new company, the management team has been working to improve Chrysler’s working capital, disposing of non-core (or non-earning) assets and reinvesting this cash into product development, new technology and new innovations for our customers.” The following related statement can be attributed to Mark Neporent, Chief Operating Officer and General Counsel of Cerberus Capital Management L.P.: “We remain extremely enthusiastic about our investment in Chrysler. Our underwriting assumed, and fully planned, that Chrysler would incur losses in the near term. Under the leadership of Bob Nardelli, Tom LaSorda and Jim Press, Chrysler is already on track to exceed its multi-year restructuring and recovery plan on virtually all key metrics. We met with the management team this week and fully endorse their strategic direction and their plan to meet the challenges of the current environment. We are confident that Bob, Jim and Tom are taking the right steps to bring Chrysler to profitability. Our mutual resolve to restore Chrysler to its leadership position as an iconic brand is unwavering.”
Cicero :
December 21st, 2007 at 9:14 pm
Why can’t Chrysler become the “all fleet car, all the time” manufacturer?
I keep wondering this myself. I wonder if the economics would work. Keep the Chrysler brand name, sell the Jeep/Dodge names to another company, and crank out rental cars.
Pch101 My guess is that functions such as R&D and design are going to be largely outsourced to outsiders. They may go further, and get these firms to partner with Chrysler Group to bring models to market, individual investments in which they bring their skills to the table, perhaps with some inclusion of a cash investment and/or free labor, in exchange for a split of the revenues or profits from the vehicles with which they assist. If you recall, I put forth the “Chrysler as K-Mart” theory at the start of this [non-Honda] odyssey. While there are sure signs that this plan exists– most significantly Magna’s unionization and the potential Nissan hook-up– I believe that the U.S. economic downturn and Chrysler’s fading fortunes have thrown a serious spanner in the works. Outsourcing is all well and good when you are a strong brand, or you have strong brands to sell. Chrysler is meaningless. Dodge, well, Dodge builds the Ram; a pickup in a market where pickups ain’t what they used to be (no matter how good they may be). Jeep, the crown jewel, has peaked. Sales of the four-door Wrangler are down, they've bastardized the rep with cod Jeeps and the fuel-efficient temper of the times is working against them. The only reason that Cerberus would dump it quickly is if the original plan failed and it had no choice but to cut the bleeding. K-Mart or strip and flip, the above PR release strikes me as nothing more than back-pedaling, pure and simple. A 13-hour meeting? If that's not crisis management what is? Chrysler is in deep trouble. Nardelli knows it. Cerberus knows it. And we do too.
Hmm… is the Jeep curse getting ready to kill off another company? Here’s the progression of companies that have owned the Jeep name (think I have them all):
Willys -> AMC -> Renault -> Chrysler -> Daimler-Chrysler -> Chryslerberus
It’s better than the old Red Sox “curse of the Bambino”!
Katie: I thought you were happy about Nardelli when he first arrived at Chrystler…
Robert: I was about to send you a link from calculatedrisk.blogspot.com before seeing this post…you two (or three…) really need to get together on this topic, both of you have interesting, and I thought complementary, takes on it from very different perspectives:
http://calculatedrisk.blogspot.com/2007/12/chrysler-serious-financial-crunch.html
Tom.
I like Pch101’s idea about outsourcing. While Mr. Farago suggests that brand strength is a prerequisite for the K-Mart strategy, I would argue for the inverse, that strategic use of big-name design houses would bring plenty cache to Chrysler and Dodge. Call me a dreamer, but I’m thinking carbodies by Pininfarina, Giugiario, Karmann and Bertone; camheads by Cosworth and chassis by Lotus… $10 billion could buy a lot of design contracts!
People expect a bit of avant-garde design from Chrysler: think about the original minivans, cab-forward design in the nineties, the Prowler, the PT Cruiser, the Magnum, the 300… superficial or not, people buy them because they’re distinctive. Bringing the world’s best designers on board would solidify this reputation.
In the meantime, pumping out V8s for Nissan and minivans for VW definitely shows manufacturing flexibility and profitable use of surplus assembly-line capacity.
Boot’em and strip’n’flip aside, Cerebrus is smart enough to know that they can’t cut their way to prosperity… their actions demonstrate that.
EVERY SINGLE GODDAMNED american car company has problems. Always the same= poor quality, poor diversity, obsoletness.
Every american car company would do anything just to avoid making good products themselves. Chrysler looks like a cheap hooker ready to sell themselves for a buck, instead of finding a real job and earning money.
Remember, i wrote about 6 phases of car company decline, of course, you didn`t notice that ,because I am nobody. So Chrysler is approaching phase5= selling imports under chrysler badge. ( phase5 was heavily using outsourcing and foreign platforms.)
But I don`t believe Chrysler`s turnaround plan. tHERE HAS NEVER EVER BEEN ANY SINGLE AMERICAN COMPANY IN MACHINERY OR EQUIPMENT BUSINESS, THAT WOULD HAVE DONE A STRONG-PRODUCT BASED TURNAROUND.
I guess your country has chosen a way already. A way to unsustainable debts, primitive manufacturing, service abundancy, dollar collapse, and health collapse whether your personal or healthcare as system.
WHen will you understand people, that your f-22 Raptor is nothing compared to the strenght of chinese and japanese credit lines that destroy all barriers of trade protectionism from USA part.
One single toyota factory protects my country better, than 1000 Abrams tanks. ( who would dare to invade a country and stop production line of a japanese company?)
Make meaningful , complex items that the whole world needs, and doesn`t have substitute manufacturers from other countries, and believe me, you will NOT need an ARMY at all!!!!!!!!!!!!!!!!!!!
Go Ron! Sorry my bad:)))
ttilley :
December 22nd, 2007 at 12:03 am
Katie: I thought you were happy about Nardelli when he first arrived at Chrystler…
Huh? Where in my post did I say I changed my mind? I’m still happy Mr Nardelli will cut out the deadwood. But if even he is saying “My work is really cut out for me here!” then, maybe we have to acknowledge, that Chrysler’s survival is as likely as the Easter Bunny and Father Christmas…….?
“I like Pch101’s idea about outsourcing. While Mr. Farago suggests that brand strength is a prerequisite for the K-Mart strategy, I would argue for the inverse, that strategic use of big-name design houses would bring plenty cache to Chrysler and Dodge. Call me a dreamer, but I’m thinking carbodies by Pininfarina, Giugiario, Karmann and Bertone; camheads by Cosworth and chassis by Lotus… $10 billion could buy a lot of design contracts!”
Respectfully, I don’t think outsourcing design will add much cache. Only pistonheads know what Pininfarina, etc. are. (Didn’t Ghia do some designs for Chrysler in the ’50s? )
The only advantage would be the designs might improve, and that would be worth something in itself.
Jurisb, Japan doesnt need military force. It has enjoyed the protection of the US military for the past 62 yrs.
We can list reason after reason why Chrysler will be the first of the old Big Three to go down. The reasons tell us that Chrysler is racing and beating Ford and GM to the graveyard. In a Darwinian economic atmosphere the only question is will one of the old American car companies be enough to sacrifice? We have a simple imbalance too much production for a decling marketplace. I think the tipping point came when the Koreans muscled into the US market and became major players. Note, it wasn’t the Japanese builders who felt the Korean pain, not it went to the weakest, the old Big Three. If the Chinese and Indians get here, probably only one of the original Big Three will survive. Given $4.00 gas, we have a perfect storm to sweep out the old and usher in an entire new World order in car builders.
After digesting all this information in the articles and comments, if you are a consumer, exactly what would YOU buy from Chrysler right now? Ever try to source parts for orphaned vehicles? That warranty you had would be worth what exactly? (“But I paid a firesale price for it” wouldn’t quite cut it).
Their only hope would be to have some outfit buy them up for the purpose of using their production facilities, and would such a corporation want to assume the exisiting liabilities such as warranties? You could alienate a lot of people very quicky if you didn’t.
Carlos Ghosn is at the Gates of Hell (Cerberus’ front door) with his check book in hand ready to buy Dodge’s RAM trucks for a 5 time improvement in sales over the Titan.
I suppose that there are two basic questions to address here: (a) What is Cerberus’ plan? and (b) Will it work?
One primary reason I believe that Cerberus will want to create this outsourcing-based model is because that sort of structure would fall very much in line with the way that private equity firms do business.
PE firms aspire to achieve high returns for their investors. They generally buy companies that have good potential but bad managers. They exploit the brand equity of the company, replace the bad managers with good ones (many of whom are probably outsiders), cull the dead weight and try to make the organization more efficient.
One basic way to achieve efficiency is to reduce your business down to a few basics, and to focus on doing those few basics that create the most value. The rest of it gets punted or outsourced (which, by the way, doesn’t necessarily that it goes overseas, just that it is delegated to another company.) In other words, instead of trying to do everything and doing it poorly, just do a couple of things, but do them very well so that the margins are good.
PE firms also try to do a lot with a little. They look for OPM (Other People’s Money) to help distribute the risk. For a company this large, forming partnerships to put individual projects together makes a lot of sense, because the partner is geared up to do it, and can bring cash and expertise to the table to do it better and faster than you could without them. This not only stretches scarce dollars further, but it also brings in useful resources that would not otherwise be available to you.
Because of this methodology, PE firms are very quick to outsource the low-value areas of the business. My guess is that they Chrysler mostly as a brand-potential play, and that a lot of the infrastructure doesn’t create much value was always targeted for outsourcing.
Chrysler wasn’t exactly known for technological innovation or brilliant design, and I seriously doubt that Cerberus bought the company with the idea that these were among Chrysler’s strengths. In financial terms, they cost money to support but don’t create profit, so why keep them? When viewed from a private equity standpoint, these have outsourcing written all over them.
The next question is whether it will work. Personally, I doubt it. In my opinion, the Big 2.8 have such dysfunctional corporate cultures that it will be difficult to turn Chrysler on a dime. The product cycles are too long to reinvigorate the brands very quickly. Finding these necessary venture partners will be difficult.
And the backbone of their plan — expanding into developing countries — won’t be a walk in the park because several of their competitors already have a head start. This whole thing could suck up a lot of Cerberus’ cash, plus ten years or more to accomplish. I doubt that they have the time, money, or stomach for something that will take that long.
jerry weber:
The reasons tell us that Chrysler is racing and beating Ford and GM to the graveyard.
I like that…we can call it “The Race to the Finished Line”
Yep, as soon as the truth about Chrysler hits the general public in the face, the gig is up. Who’d want to buy an unsupported product when so many other alternatives are out there? And, unfortunately, it seems that once one dam bursts, the ones downstream don’t have much of a chance either. Ford and GM will be under strong public scrutiny once Chrysler keels over. Spin and politics are like bubble gum on the radiator hose.
Will Cerberus turn a profit on this buy and sell operation?
@Uncle Pete:
You forgot one of Jeep’s owners —
Willys -> KAISER -> AMC -> Renault -> Chrysler -> Daimler-Chrysler -> Chryslerberus
Sure looks like a jinx, doesn’t it?
The company that devours Jeep will, in turn be devoured.
That is an old story amongst Jeep fans.
Chryslers problem is their product is not competitive. The Sebring, Compass, Commander? What were they thinking? The Wrangler, the 300 maybe some of the other Jeeps are up to standard and the and the rest of the lineup is rental market specials.
Chrysler has not shown that they are capable of producing well designed cars and trucks that people want to buy. Other than the 4 door Wrangler and the Chrysler 300, which vehicles in their line up are actually competitive? And even the 300 will have been on the market for five years pretty soon. But does anyone believe that the current crop of Chrysler managers could get a replacement for the 300 designed and built that could live up to the current generation? They spent hundreds of millions of dollars to develop the Avenger/Sebring and instead of making a competitive alternative to the Camry and Accord the built lousy driving rental cars with cheap plasticky interiors that had nothing to offer the consumer except a glove compartment that keeps drinks cool. The people making the big decisions at Chrysler don’t get it and now it looks like they’re running out of time and money.
The Chrysler 300: Our generation’s Studebaker Avanti.
Perhaps I left out the one huge fallacy of all these so called turn around plans. GM FORD & Chrysler continue to assume that they are shooting at a stationary target. When they finally build that camry or accord killer honda and toyota simply aren’t there any more. This has been the legacy of the last 30 years. It manifests itself in the half a loaf new domestic products. When the Ford 500 came out three years ago it was a modern body design fused together with the obsolete power plant and tranny of the old taurus. Three years later the “right engine and tranny” have reached the 500 now named the new taurus. However, the state of the art body is now old news and the 4000 pound weight too great for a non suv vehicle. Three years ago, the entire package might have sold, now it is old news and been passed by more modern products from the Japanese and Koreans. A similar story can be told of the new sebring. A crash effort is now on to get it right, but by that time the target is moved farther foreward by the familiar suspects. There can be no victory starting one lap behind at the start of every race.
I agree that Chrysler has that much to sell…or buyers for it. Jeep could go to Magna…I know at the start of the SUV craze (aka the beginning of the end for the domestic automakers, though few people thought of it at the time) Magna even mooted the idea of building their own high end SUV. And they do so much assembly for them already…
But Mopar performance doesn’t offer anything unique. There are dozens of companies offering aftermarket parts for vintage and current Chryslers, including blocks and crate engines. They won’t get much for this…not enough to make a difference.
Pity, but yes, I think this is ‘the end’.
One has to seriously question whether Cerberus has lost it. They have made bad investments [GMAC, Chrysler, etc] and have only been saved from further losses by the courts deciding that the United Rental deal was not enforceable. Still cost Cerberus $100M to get out. They have other losers on their hands. Kinda makes you wonder if these guys are complete dolts. I don’t think Cerberus has the will power or the talent to help Chrysler out of their problems. Look for some real firesales and more bad financial news over the next few quarters. Maybe someone will want to buy parts of Chrysler but don’t bet on it. Cheaper to bid at bankruptcy.
The more I hear about the current and past successes of Jeep, and with them really having the only truly DESIRABLE PRODUCT in the Chrysler stable, why doesn’t a group of investors get together and make Jeep it’s OWN ORGANIZATION? I could see the ad’s tagline now: “Just Jeep”…
True stories –
This past Monday morning – Northern KY – two younger gentlemen were driving their new appliance white Dodge Avenger like they stole it. It must have been a recent purchase – it still had the Kentucky paper tags. Of the standard three brake lights that should function, only one did.
That same afternoon. New Chrysler T&C “mini”van. Missing plastic trim and more dead taillights.
Later – new 300C had one dead xenon light.
If this is the best they can do with brand new cars with cars that had to have at the most several hundred miles on them, let them fade away. If they don’t care about making a decent product, see ya. When you sit in traffic and see the new Dodge and witness time and time again one working light, mental note – scratch Dodge off of the list.
Worthless fleet cars – that’s what they have been reduced to.
Also, doesn’t it seem that Chrysler is aiming to win the new version of the “Ford Taurus Rotting on the Vine Award” with the 300?
I can’t imagine any kind of new ownership getting any positive cash flow out of this dead horse. Congrats Daimler…now fix your own defective products.
I read the WSJ article and came away with the exact impressions RF did. People bought RCA and Zenith TVs for years after they were made overseas thinking they were buying American. Dodge and Cry-sler will follow the same fate. Roll one of their cars over and Made in China will be stamped on the bottom like a Matchbox car.
This is all a classic case of owners lying to everyone at the company about their intent. While they are busy telling workers, suppliers, unions, and investors one thing they are quietly planning an entirely different plan.
But that is business and capitalism. While we may want the government to do something or a different outcome to occur, the law of the jungle applies. Even to has been car makers.
GS650G Toyota builds in the US payimg good wages and even uses the UAW for some cars and they make a profit. So I fail to see why the law of the jungle demands it. Chrysler like GM and Ford have ben run like crap for years and now they are looking for shortcuts.
Chrysler was profitable during the early Daimler-Chrysler days, what happened?
I work in PE: a close friend is in the auto side of the buyouts.
What is missing here is the recognition that the combination of GMAC and CFC really makes CG irrelevant. Cerb got CG for free…a call option on a marginal business/industry.
Yes, the subprime hit at GMAC is a mess, but the losses are equally absorbed by GM. BFD.
The play is to stabilize the cflo at CG, and plan for a boffo IPO on the financial side when the market eventually turns.
CG? Sale to third party….Nissan, Hyundai, the Chinese.
My $.02
It’s Studebaker all over again. From the aging product line, to the negative cashflow, declining sales and lack of R&D money. Now will come the same thing that ultimately did in Stude – the public rumors of its impending demise.
No one wants to be stuck with an orphan. Just ask anyone who owned an Eagle.