Chrysler Financial has pulled the plug on new vehicle leases. Given ongoing bankruptcy rumors, the automaker’s co-Prez immediately manned the PR barricades. Jim Press reassured the world that Chrysler is simply diverting lease subsidies into “traditional financing.” That way, “many customers” could enjoy “about” the same monthly payment that they “would have had” in a lease. Meanwhile, ChryCo spokeswoman Shawn Morgan sang the same old song. "Despite the challenges, Chrysler continues to meet or exceed its plan on all financial metrics." C’mon, really?
Talk about the smartest guys in the room! This statement assumes that Cerberus Capital Management knew the U.S. new vehicle market was about to implode when they bought Chrysler in spring 2007. If so, talk about disinformation! At the time of Chrysler's purchase from Daimler, Cerberus Chairman John Snow said: "Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry."
Inherent maybe. But since that fateful day last August when Cerberus took ownership of the Pentastar, the domestic auto market’s gone south. South Pole in the winter south.
In fact, truck and fleet car-heavy Chrysler couldn’t be worse positioned for the economic downdraft. Its cash cows are dead; the slaughterhouse is backed-up with carcasses. Their revamped minivan is selling less briskly than the model it replaced. The new Dodge Ram is scheduled for a fall launch, but it won’t/can’t get out of the gate unless dealers can get rid of the old Rams– which are stockpiled to fences. Many Dodge dealers have trucks on the ground that have had birthday celebrations.
The numbers speak for themselves…
In the first half of 2008, ChryCo sales slipped some 250k units compared to ’07. That’s roughly a 22 percent decline. Chrysler’s truck sales are down 25 percent, the biggest loss of any major truck maker. The automaker’s overall market share has dropped 1.8 percent; it’s now less than 12 percent. We already know the impact of sagging sales and lost market share on Ford’s financials. Does Chrysler CEO Bob Nardelli really expect us to believe that his employer’s been meeting or exceeding its projections?
To accept that assertion we’d have to ignore Daimler’s Q1/08 public financials. These stats suggest that Chrysler Holdings (including the automotive ops and the finance arm) lost a staggering $2.9b in a three month period.
Not at all says Chrysler. Daimler included a whole bunch of items which cannot be used to make such a calculation. We lost only $509m. One of those “excepted items” includes a $200m difference due to US and Euro accounting standards. So Chrysler didn’t recognize certain expenses but Daimler did?
You’d be forgiven for thinking that under a more "aggressively conservative" accounting approach, Chrysler Holdings lost $700m in the first quarter, maybe more. Any way you cut it, it;s bad. Yet all we get from the CEO's office is an exhortation to ChryCo employees to “stick to the course we have set for ourselves for a return to profitability.”
No one beyond Cerberus founder Steven Feinberg’s inner circle of executives and bankers knows the exact truth about Chrysler’s financials. In the absence of solid information from Auburn Hills about the automaker’s financial health, speculation about Chrysler’s future, or lack thereof, is running rampant.
And why not? It's clear that there ain’t no mo’ money available to the company. The bankers have put down their ten-foot poles and run. If the well runs dry, that’s it, the gig is up.
Lenders to Chrysler’s suppliers, vendors and dealers are getting nervous. Extended payment terms, selective invoice discounts, and for some, delayed payments, exacerbate the tension. We’re told that there’s $7b in the kitty. But every dollar is precious. Prudent cash flow management or an internal scramble to manage the cash drawer to keep it from emptying? This could be the prelude to the “run on the bank” scenario RF mooted for GM back in Delphi’s dark days.
The dominoes will start to fall if and when a lender to a Chrysler supplier decides it doesn’t want to continue providing financing. Credit gets cut off. Facing extinction, the supplier puts Chrysler on a “payment on delivery basis.” The fire spreads. Every supplier insists on cash on delivery. Word gets out. Dealers stop ordering vehicles. Chrysler runs short of cash. Game over.
To forestall foreclosure, Cerberus needs to publish Chrysler’s financials (including the financial arm). If the automaker’s doing better than we think, that’s great. We’d like to share in the brilliance of the turnaround. Chrysler’s camp followers will support Nardelli’s public proclamations. Dealers and suppliers will have more confidence in the company and the stewardship by Cerberus.
If the dark clouds of bankruptcy are hovering over Auburn Hills, well Ford and GM aren’t doing so great either. At least it’s out there for everyone to see. But Chrysler’s continuing drumbeat of plant shutdowns, employee layoffs, sales declines and now a cut-off of leasing just leads to speculation, none of it good. The question remains: how much of it is right?
Rumor on the Street is that Cerberus’ limiteds (who also own a big slug of the equity) expect Cerberus to ‘do right’ by them and continue to fund the company if needed…or else. There is allegedly plenty of capacity in the current fund to do so.
Anyone else think it was strange that Nardelli didn’t run the call yesterday?
This is what I stated in my post on Chrysler stopping it’s lease program (or being stopped). It’s all about the cash burn. They have to have enough money to run operations until the market recovers some. If they run out, game over. If they make it they live (maybe to die another day, but then an asteroid may hit the planet too). Maybe they can arrange financing from someone. I don’t know what their connections are. If they wait till ch 11/7 they will get almost nothing for it. So I think they will sell/merge with someone before that happens.
The bankers have put down their ten-foot poles and run.
Wicked.
Hehe…”aggressively conservative” – gotta love that made up / crap phrase – and from the most detached executive leaders in the business!
So Chrysler didn’t recognize certain expenses but Daimler did?
That’s actually quite possible. US accounting rules do vary from those used by Daimler to prepare its quarterly financial statements. I’m not clear on this, but it may be possible that Daimler is also booking carryforward losses from its disposal of its former 80% share in Chrysler that wouldn’t show up on Chrysler’s current books.
As Windwords notes, Cerberus’ current priorities are almost certainly on cash burn, more than anything else. They need to create profitable products before the money runs out. It’s going to be a race, and personally, I think that they’re going to lose it.
My prediction is that a foreign company is either going to buy Chrysler at a price that makes Cerberus’ bargain price look like an enormous ripoff, or else takes it in as a white knight that heavily weights the deal in favor of the newcomer. The Cerberus investors will be royally pissed, as they are undoubtedly expecting Cerberus to pony up cash to support this thing and will be unhappy when they don’t do enough.
They may well have to put it into BK, so they can shed some of the liabilities (union contracts) that make acquiring it undesirable. Cerberus bit off more than it could chew with this one. Sometimes, even three heads and a bunch of snakes just aren’t enough.
As I was reading the article a thought occurred to me. I figured that it must have been easier, from a PR standpoint, back in the early 1980’s to have an automobile company in financial crises. All you would have to do is refuse to grant unofficial interviews and then issue press release after press release insisting that everything was fine and that you had the situation under control. Information was much easier to control then.
In the present I would wager that the casual TTAC reader knows as much about any one of the Detroit companies’ sales numbers and financial status as some of their own salaried employees. Information, as we all know, is as widely disseminated and shared as we want it to be, worldwide. It’s much harder to pretend that everything is golden and not look the fool.
I believe that Ford is the only one of those companies that really gets the fact that times have changed.
Chryslerberus’ situation is a soup sandwich…
I’d really like to know how the Ram, the least desirable pickup of the bunch (IMO), wound up being the only pickup with available with a V8 and a manual…
Is it because they’re so slow on a refresh that they’re the last maker to remove the option? Will the 2009 V8 Ram offer a clutch as an option?
It all comes down to money. I don’t care if it’s bank’s, government’s, or these so called shady behind the scenes green hooded guys at Cerebrus.The money has the same value in the World.
If you have two intertwined losers. Chrysler& GMAC you call in the work out experts. They tell you what will happen if: you keep going say cutting as best you can, you declare bankrupcy, you inject more of your own money, you sell. I think these prognosticators of finance will rule out the first and third options.
Cerebrus is no different than Daimler was last year. The options became quite clear to old Dieter Zetsche (who had an intimate insider knowledge as former head of Chrysler) that trying to cut the losses was the only way out for the Germans. It is now down to two options, try and sell all or part, or declare bankrupcy.
Financially, it is not only prudent but probably necessary as the cash available for any continuing or infusion is simply no there. I said in another blog, it might have been painful to leave 36 Billion on the table with Chrysler, but Daimler did and they are healthier for it.
Cerebrus will lose a lot less, but loses they will.
.
If Nardelli were Captain of the Titanic, he’d say we were stopping to pick up some ice.
There’s an abandoned Target parking lot that is used for an overflow lot of a local Dodge dealer. Full of Dodge Ram trucks.
They are trying to get suppliers to loan them money. By taking longer and longer to pay, they are in effect taking large working capital loans from their supplier base. This will not end well. Cash burn rate is the only thing that matters- well, that and new products. At some point depreciation on their products will be so bad that even fleets will bail. Believe me, Hertz knows exactly what it costs to buy/rent/sell an Avenger. That is when CerberusAuto is toast. The other trigger could very well be the death of a supplier. Some of the domestic suppliers are in very bad shape indeed. They can’t afford to float Chrysler a loan. And if Cerbeus goes broke, if they are caught with the debt at the bankruptcy, good luck, go stand in line.
As for the financials, I expect that they will be leaked eventually. This is the Youtube age, after all.
@rtz
I bet if you stole one the dealer and the three headed dog would thank you.
It’s bad when you can still buy brand ‘new’ 2007 models eight months in 2008.
It’s beyond bad when there are still multiple ‘new’ 2006 models available eight months into 2008..
Maybe it’s just South Jersey, but several local DCJ dealers around here still have ‘new’ 2006 Crossfire’s, Caravans, and Grand Cherokee’s for sale.
And they’re still not selling with $10K+ on the hoods.
To paraphrase Sir Edward Grey’s morose observation in August, 1914, “The lights are going out all over Auburn Hills and I doubt we will see them go on again in our lifetime.”
My co-worker just bought an ’06 Crossfire for 17k. 12k miles. Someone took a big bath on that one. How on earth could you sell a new one for $40k?
Hmmm..
I second the comment about Chrysler overflow..
I live in the DE / Phila state area. The local Dodge / Chrysler/ Jeep dealership has so much overflow.. (Gary Barbara 2-3 blocks south of Cottman Ave on the Blvd) I thought I had lost my mind. Ive never seen.. so much excess. ShTT, I bet ya could rent a whirlybird and look over the area and see a big DESPERATE SIGN over the dealership. Poor stupid bas*rds.
The Chrysler / Dodge / Jeep dealership has about 4 extra lots that hold inventory.
He has his main lot that is busting at the seams. He has a lot next to main one that has some overflow.
There is a lot up the street that used to be a other car sales company, that building went, and the whole massive lot is dodge trucks.
A wawa is across the street from that with Dodge Trucks sitting behind it.
And behind them all, is a 70s duplexes, and they all look on a swarm, as in a mad mad insano swarm of UNSOLD DODGE VEHICLES.
You couldnt get me in there if you pushed me. I avoid that place like the plague.
Morbo,
What part of South Jersey do you hail from? I grew up in Millville.
It is interesting morbo talks about leave overs in Jersey. There are more than a couple of 2007 and a few 2006 leave overs from the big three out there and not just in Jersey.
The thing to remember is the 2007’s and 2006’s have nothing to do with the fuel crisis this Spring. They should have been gone.
Let me tell you what you can buy around NE Pa. 2006 300SRV’s dodge durangos, and Jeep commanders and cherokees. (If you like GM bargains, how about Caddy DTS, Buick Lucernes.)The overbuilding of mostly trucks and suv’s was going to come to a halt by the end of this year anyway. The gas crunch just accelerated it six months.
Again, as someone who was inside a dealership, unless you have some highly profitable other dealerships, you cannot be a chrysler dealer for long with this amount of iron laying around. Farago talked about this overbuilding at chrysler a year ago.
Chrysler may get their wish of having less dealers, but I don’t think the parent company can last any longer than some of these stretched dealers.
Some wag made an interesting comment about the lifetime engine warranty at Chrysler. Whose lifetime is insured the car or the factory? Could this warranty be actually less than the 3/36 you get from other companies?
What I always wondered about Cerberus buying Chrysler is them buying a car company that is married to the UAW? Maybe the oil prices caught them by surprise, however I would think that they would have had a long term plan, including a divorce with the UAW? Honda is building a new plant in my home state to build non-union Civics to start with. It just seems like to me that they would want the same thing, along with GM and Ford. Providing that they survive, this may be a way to do so?
At some point, these will be enough of a bargain that someone will take it. The crossfire is a dog at $40k, but at 20k it’s worth buying…even if the company tanks you can still fix it with MB parts.
Chrylser out, GM out, Ford to follow? Interesting times.
rtz…are you sure Target isn’t selling them?
So tell me Airhen how was Cerberus ging to buy Chrysler and divorce the UAW? Once workers vote to have a union in a work place it exists for that workplace forever unless the workers vote to decertify the union which virtually never happens.
Even if they go Ch11 they may be off the hook for some obligations but its up to the bankruptcy courts.
I bet if you stole one the dealer and the three headed dog would thank you.
Did you check the iginiton? They may have left the keys in them for you…
It’s no suprise that leases are dead for the big 2.8 since the largest component of the lease payment is depreciation, as determined by the “residual value” at the end of the lease. The leasing companies set optimistic residual values on SUVs and trucks 2-3 years ago and now are “upside down” because the SUV/truck is worth far less than the leasing company predicted.
I figured this out back in 1996 when I looked at several leasing options. The 36 mo. lease payment on an $18K Chevy Cavalier (ha!) was $100 more per month than to buy it with zero down for 60 months. But an $18K Honda Accord had a lease payment $100 LESS than the zero down/60 mo. payment. The difference was the residual value, about $12K on the Accord and about $7K on the Cavalier. And that $7K was pretty optimistic even then. After I got done laughing the Chevy finance guy admitted that it was a horrible deal to lease a Cavalier.
@ Sherman
Why would Cerb want to divorce the UAW?
The UAW holds the key to a financial bailout from a Democrat Congress & President in 09.
rodster,
the sad thing is that most people don’t know just how bad of a deal it is…
Man, I’m lucky I ditched my SUV in April of ’06. I don’t even know why I bought it in the first place…what the hell was I thinking? Young and Stupid…
I wonder how that guy who started the massive Chrysler dealership in Edmonton ( or Calgary?) feels right now hearing about the leases being dumped…
The dodge dealer I drive by every morning was sitting on a lot full of Dodge trucks. Now they have a lot full of avengers, or chargers or whatever. I’m wondering where all the trucks suddenly went, because there is no way in hell they sold all of them that quickly./
Hey c’mon everyone. This is Cerberus. Why, these guys are Masters of the Universe, dontchya know? Show a little respect!
Who else would buy a car company with vastly inferior products at the very peak of a Finance/Insurance/Real Estate bubble – and that comes with an extortionary labor union relationship that will bleed you to death – and best of all, hire Bob Nardelli to run it the whole shebang?
Geniuses, every one of ’em!
rodster205
I figured this out back in 1996 when I looked at several leasing options. The 36 mo. lease payment on an $18K Chevy Cavalier (ha!)
They were selling Cavs for $18k in 1996?! That’s like $24k today! Did it come with solid-gold trim or something?
jim3480 :
July 28th, 2008 at 12:49 pm
Hey c’mon everyone. This is Cerberus. Why, these guys are Masters of the Universe, dontchya know? Show a little respect!
Who else would buy a car company with vastly inferior products at the very peak of a Finance/Insurance/Real Estate bubble – and that comes with an extortionary labor union relationship that will bleed you to death – and best of all, hire Bob Nardelli to run it the whole shebang?
Geniuses, every one of ‘em!
+1!
Why does Chrysler have so many V6s? They had a display at the local mall, and had four vehicles. The Jeep Wrangler had a 3.8L, the Liberty a 3.7, the Journey a 3.5, and the van had a 3.3. That doesn’t seem very cost effective, or any of these engines closely related mills with different displacements?
The 3.3L and 3.8L engines used in the minivans, Wrangler, and the late base model Pacifica are closely related. The 3.7L truck engine (Liberty, Nitro, Ram, Dakota, Durango/Aspen) is most closely related to the 4.7L V8. The 3.5L and 4.0L V6s (300/Charger/Challenger, minivans, Pacifica, Sebring/Avenger/Journey) are closely related.
These three distinct V6 engine families are due to be replaced with a single new engine (available in several displacements) due in 2010.
Gary Barbera Dodge, where screaming ads and loud mouthed sales guy can get you into a 2007 Sebring for only $399 down and $399 a month.
That joker (Gary Barbera) has one of the sweetest bayfront summer homes in Ocean City, NJ, with a private canal/boat launch. He ain’t hurtin’ (yet).
Funny thing is that the only bigger jackass for car sales in the Tri-State area (PA/SJ/DE), Frank Kerbeck, is two blocks down from him. Guess assholes love company.
windswords – Atlantic City / Ocean City area.
“These three distinct V6 engine families are due to be replaced with a single new engine (available in several displacements) due in 2010.”
And if they make it, they will replicate a strategy Nissan has used successfully with their VQ engine series for almost 15 years now. Talk about being late to the game!
I drive by my local Chrysler dealer frequently.
A few weeks ago their lot became stuffed with 300s and trucks.
Nothing there I would look twice at.
It’s very obvious what isn’t selling. I feel sorry for my dealer being stuck with so much of this unpopular stock.
I hope they survive so I can get original parts for my oldie Chrysler until they build a car I’m interested in.