October 6, 2009

Chrysler ‘May Not Make It Another Year’

ChryslerFiat0609In early July, following the very first month after Chrysler LLC emerged from bankruptcy, the Associated Press, in an unbylined report about changes in the company’s board, saved this little nugget for the last of its eight paragraphs:

Chrysler’s poor June performance also casts doubt on whether the U.S. government’s $7 billion allocation will be enough to get the automaker through the U.S. sales slump, which is projected to last into next year.

Those doubts are growing. In a report on Chrysler’s just-announced management shakeup, AP auto writers Tom Krisher and Dee-Ann Durbin began their report by ringing the alarm (bolds are mine):

With sales down sharply and pressure to start generating cash before government loans run out, Chrysler CEO Sergio Marchionne shook up his executive team Monday, replacing two of his brand managers after just four months and splitting Dodge into car and truck units.

The changes show Marchionne’s penchant for moving quickly and demanding performance, industry analysts say. But it’s also a sign that all is not well inside the company’s sprawling headquarters complex in the Detroit suburb of Auburn Hills.

I mention the AP reports because they support what might otherwise be dismissed as hyperbole coming from a blog for auto buffs. But even if AP hadn’t taken notice, there are plenty of other reasons not to dismiss what follows out of hand, not the least of which include Chrysler’s continued string of steep sales declines, its apparently politicized and possibly reverse discrimination-driven decisions about which dealers it would keep after emerging from bankruptcy, and the financial health of Fiat, its supposed savior.

Kevin DiOssi at Mopar Muscle Magazine’s blog (HT Doug Ross) elaborates (bolds are mine):

Chrysler May Not Make it Another Year!
Financial woes.

Rumors, credible rumors, are beginning to circulate in the car industry and the automotive press, that Chrysler may not make it another year primarily due to its falling sales and growing financial losses at partner Fiat.

Chrysler sold a 62,197 cars in September, down 42% from the same month last year. The figure was down from 93,222 in August when traffic to dealers was pushed up by the ”cash for clunkers” program.

Chrysler’s problems may only be beginning and, if so, Fiat, the ”managing partner” among Chrysler’s owners may not be able to keep the American company intact.

…. The daily management of Chrysler is controlled by Fiat which owns 20% of the U.S. company with options which could take that amount to 35%. Fiat has not put any money into Chrysler, so if the American firm becomes a significant operational or management burden there are very few reason for the Italian company, which has sales troubles of its own in Europe, to stay long term. Fiat lost $254 million in the second quarter, so its board may eventually believe that Chrysler is a distraction and one without a future.

…. At this point, the Chrysler product line is still dominated by mid-sized sedans, SUVs from Jeep, minivans, and pick-ups like the Dodge Ram. The company has no real product in the alterative (sic) energy/hybrid segment. Chrysler’s domestic market share in September 2008 was 11.1%, according to Edmunds. Based on sales figures released by the industry today, that share is now closer to 7.5%.

…. Chrysler sales are now running at the rate of 750,000 a year. It probably does not have the capital to wait through another year of low US car sales with a market share that is almost certainly to stay below 8%. It does not have models tailored to the current market tastes. Chrysler is going out of business. The company just hasn’t made it official.

To be crystal clear, the final two sentences represent DiOssi’s opinion, not mine.

As far as I can tell, AP has thus far been virtually alone in even recognizing the existence of immediate survival issues at Chrysler. That media neglect can’t last, can it?

Given that the U.S. government holds a 9.85% stake in Chrysler and has $7-8 billion out in post-bankruptcy loans (the more recent AP report says the total lent is “roughly $8 billion”), you would think that the company might release the kind of detailed quarterly financial statements an SEC-regulated publicly held company ordinarily would, so we could see for ourselves how bad things are. Though you have to believe that the company is already reporting the gory details to the Treasury Department, I doubt that the American public will ever get to see them.

Cross-posted at NewsBusters.org

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1 Comment

  1. I do find it annoying that DiOssi makes it sound like part of Chrysler’s problem is that it has not entered the ‘alternative’ cutsy wootsy feel goody world of dinky hybrids with their expensive, clunky and costly to recharge, forest-killing, toxin-spewing batteries.

    Maybe the problem is not that Chrysler is churning out to many “mid-sized sedans, SUVs from Jeep, minivans, and pick-ups” but that those vehicles aren’t well-made enough or don’t stand out of the pack too much.

    After all ‘green’ GM ain’t doing too hot either.

    Comment by zf — October 6, 2009 @ 4:03 pm

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