Laugh, said an anonymous sage, and the world laughs with you. The corollary to which apparently, is “make unrealistic predictions of your own success and the world laughs at you.” Fiat CEO Sergio Marchionne is finding this out the hard way, having predicted in a Globe and Mail interview that his Auburn Hills-based bailout baby will be making money “in the next 24 months.” And how, pray, does Marchionne expect to achieve the impossible? Marchionne insists his goal is achievable “because we have decided not to flog inventory, because we’re disciplined about production, because we’re going to try not to discount the vehicles. If [discounts are] the only way I can sell them, I’d prefer not to produce them because I’m not making any money.” But is there some other way of selling Chryslers?
Recent sales numbers don’t seem to suggest so, and Marchionne can only turn down cash flow for so long. Or, to be more precise, Fiat’s predicted $1.56b profit has to be used to pay down Fiat’s extensive debts before it can be used to prop Chrysler up. Besides, Marchionne insists that “[Chrysler] doesn’t need it,” because they’re “managing their resources well.” But with inventories low, production will have to ramp up again. Which costs money, and if Chrysler won’t fire-sale its weak products, Marchionne will be changing his tune soon. Meanwhile, if profitability does return, an initial stock offering will only benefit one body: the UAW’s VEBA fund. “VEBA needs to monetize that interest,” explains Marchionne. “That was the deal. We owe it to them.”
GM and Chrysler will never be profitable ever again. Period.
Good comment Geotpf! I didn’t see that one coming!
Any more genius comment from anyone?
Chrysler profitable? I know that it’s April 1st already.
I wonder if he’s looked at Chrysler’s reduced production capacity. Then looked at it’s share of the market. Then perhaps he’s made an assumption that Chrysler’s share, no matter how lousy it’s products might be overall, has some floor. Perhaps it’s already at that floor, I dunno. And before we dismiss the concept of a floor, ie. Chrysler’s minimum market share come hell or high water, move here to East Bubbaville in Flyover Country. Look at all the “Calvin Pees” stickers reflecting the hackneyed, anachronistic loyalty to one’s preferred Big 2.8 brand. I live next door to one such person who would die before his family would drive anything but a Chrysler product.
So, if Chrysler’s production capacity meets its expected demand *and* such production capacity’s costs are under (even if only a teeensy, weeeensy bit) the revenue it gets from it’s floor sales, then yeah, 2011 ain’t out of the realm of possibility. Assuming all the assumptions are correct.
Now, if he’d promised us all ponies, well, I’d be skeptical of that claim.
# Autojunkie :
October 9th, 2009 at 12:01 pm
Good comment Geotpf! I didn’t see that one coming!
Any more genius comment from anyone?
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Great minds think alike. Geotpf summarized it pretty well. Nothing more needs to be said.
I can’t argue with Grog’s comment.
When you’re so far at the bottom, and the only way is up, then there could be a chance of profitability.
Besides… Chrysler needs whatever good PR it can get right now and this is, if anything, a good bit of PR.
grog :
You are correct, I live in an area where the coastals meet the bubba’s (you see as many chargers as camrys) and ChryCo does have that loyalty factor, nothing like driving past the park (trailer) and seeing the crowd gathered around the new sebring staring in awe. These people will keep ChryCo around 5-6% market share and as small as they are now, that will probably be enough.
But that leads to the next question, lets say Fiat makes ChryCo cars ten times better than they are now, will the bubba’s be willing (able) to buy them at the price point that they are going to sale for and no chryco financial backing the deal (lets be honest, alot of that loyalty is built upon the fact that Chryco is the only one that would finance them). The non-bubba’s won’t touch Chryco for a long, long time.
grog: And before we dismiss the concept of a floor, ie. Chrysler’s minimum market share come hell or high water, move here to East Bubbaville in Flyover Country. Look at all the “Calvin Pees” stickers reflecting the hackneyed, anachronistic loyalty to one’s preferred Big 2.8 brand.
Around here, as far as Chrysler is concerned, that loyalty usually extends to Jeep Wranglers, the Dodge Ram pickup truck and the minivans, and nothing else.
The cars are pretty much rental-company fodder. I don’t believe that Chrsyler can survive on those three products.
At least Ford and GM have some buyers who are loyal to the passenger cars, too.
GM, Ford, and Chrysler continue to post red ink at sundown every day of the week. Two of the three have no realistic chance of reversing this any time soon and will not have to opportunity to try unless massive funding is found to keep them going.
The above is old news. Why do we have people trying to sell a different and totally bogus story?
The UAW own how much of Chrysler? Think they’ll be cutting their brothers’ pay down any more than has already been done?
The UAW actually owns none of ChryCo, a VEBA does, its purpose is to provide healthcare to ChryCo retiree’s (and future retiree’s). It is run as a trust, the trust’s responsibility is to fund healthcare for retiree’s, not to worry about the current workers salary or well being, just as accepting the amount of stock, rather than making sacrifices of thier own (pay cuts, increased co-pays, etc.) the current workers didn’t think about the retiree’s well being.
Chrysler has to be burning at least $200M on salaries and hourly costs per month (49,637 employees times a conservative $50,000/yr average pay per employee). Add to that other costs and perhaps Chrysler is burning closer to $250M-300M/month. It left bankruptcy with 6.6B in cash according to the NYTimes. Do the math: that’s 26 months from June 2009 before it runs out of money (August 2011). Don’t count on sales increasing before 2011 without more federal juicing of the economy. 2010 will be brutal because of unemployment and housing woes. And how many more auto executives will need to learn the lesson the hard way that as long as there is huge overcapacity incentives are here to stay???
Like Cerberus before them and Daimler before that; no rabbit is going to appear from a hat.
They need profitable product, but more importantly they need product that will sell and they have virtually nothing. What they do have that is somewhat desireable in the marketplace (Wrangler, Caravan/Town & Country, and 300) is very dated; everything else is forgettable, except maybe RAM.
Fiat needs a reality check or the Hope Diamond of automakers will claim them too.
The new-generation interiors are perfectly fine. With the tweaking that’s already happening, the current line is stellar for what it is.
Normal cars for normal people. These cars are affordable, mostly handsome(and getting better) and are built to a (rather low, but still passable at the price point) 150,000 mile replacement interval. The trucks are infinitely heavier, and will last as long as you service them.
Guffaw as you will; it’s not kind to say such things about others. My Father(1997 Ram 318– 255k) is a steelworker in Birmingham. His wife(2006 Stratus 2.4– 50k,) is a homemaker. Their children are an accountant(2003 T&C– 110k) and art undergrad(98 neon– 185k.)
It’s not coincidental that this family’s mobility has never been hindered by what they drive. Stop acting like this, pretend you’ve some grasp of the concept of humility.
Bubbas in Fiats….now THAT’S a picture.
Bubbas in Fiats
Would be a great band name.
These people will keep ChryCo around 5-6% market share and as small as they are now, that will probably be enough.
No, it won’t, not without shuttering plants and cutting jobs, sadly. Chrysler was at 8.34% market share in September. Yes, out of a very small market and the market should rebound eventually, but it’s just not enough to cover their fixed costs. When you add that they practically have to put enough money on the hood that they lose money on each car sold, I just can’t see how a 5-6% market share would be enough, not in 2011.
They’d have to get much smaller first.
I was going to write something pithy like “your lips to God’s ears,” but it looks like Marchionne has that covered.
Key to ramping up production is parts supply, that will be the major hurdle for Chrysler-Fiat.
Let’s say Chryler’s new midsized cars sell at the same rate as the current Sebring, something like 50,000 per year. Let’s say it takes $2 billion to engineer its successor (and that’s on the low side for new models). If you amortize the $2 billion over a 5 year run of 50,000/per year (250,000 total), then you need to make back $8,000 per car in development costs.
that will probably be enough.
the 5-6% market share refers to the people who will only buy chryco vehicles. Its thier floor. The additional 2-3% comes from pricing/financing available. And by making it, I was referring to making it to 2011 and giving marchionne the time he is counting on.
Do I think they are just giving chemo to a terminal yes, but it’s a few more years of life.
That loyal 5-6% market share floor is aging and not being replaced. I’m 40 and from Michigan, and I don’t know anyone who is Chrysler-loyal – maybe there’s a cousin who has a soft preference for RAM. Some are loyal to the general idea of buying American, but they tend to be Ford or GM people.
That’s at my age…today’s 18 year olds? They are not buying Chrysler.
My dear old 68-year-old aunt still thinks of her Chrysler Sebring as a premium vehicle (“would you like to go for a drive in The Chrysler?”). Haven’t the heart.
Ha! There’s that picture of the new Viper with The Pope and three other blokes again.
(You can see it in the background).
When I predict continued dismal UNRELIAABILITY,
Chrysler-Fiat cannot predict profitability. EVER.
LOL…
Chrysler might return to profitability. And monkeys might fly out of my butt!
John