By on April 30, 2009

Chrysler’s logo should have been a bottle of lithium, rather than the Pentastar. It suffered from severe bipolar disorder all its life, and, sadly, died from it at its own hands. Like many suicidal bipolars (e.g., Van Gogh, Hemingway, Virgina Woolf), Chrysler’s many crashes and acts of self-mutilation were punctuated by fantastic highs of brilliant engineering, design and creativity. Chrysler has taken us on quite the roller coaster ride. And now it’s over. As we stumble out of our (Hemi-powered) coaster car, we’re left with an intense mixture of relief, thrill, and sadness.

Chrysler’s beginning was an unparalleled flash of genius and overnight success. Walter P. Chrysler had a fairy-tale career in the early automobile business, earning $10 million ($130 million today) in just three years while turning Buick into GM’s early powerhouse. Then, while running Maxwell, he launched the Chrysler line in 1924 with that just-perfect blend of advanced engineering and style.

It was a home run that catapulted Chrysler to number four out of a crowded field of 49 manufacturers. The subsequent successful launches of the low-price Plymouth, the upper-mid priced DeSoto, and the purchase of mid-priced Dodge firmly established Chrysler as a charter member of the Big Three.

Chrysler’s first crisis came in 1934 with the failure of the radically advanced but unusual-looking Airflow. Its wholesale rejection by the buying public taught Chrysler (and Detroit) a painful lesson: avoid extreme innovation.

Chrysler recuperated and made enormous profits during the WWII era. But the development of the all-new 1949 models was haunted by Chrysler’s still-lingering Airflow insecurities. Whereas GM and Ford confidently introduced longer and lower models designed to thrill exuberant post-was buyers, Chrysler president P. T. Keller insisted on tall, boxy cars.

In the early fifties, Americans were in the mood for more—horsepower, automatics, power steering and brakes, style, and flash. Unlike Chevy and Ford, Plymouth offered none of those, and the market punished it unmercifully. In 1954, Plymouth was kicked out of its long-established number three spot by Buick and dropped to number five behind Pontiac.

The exuberant designer Virgil Exner was hired to inject vitality and fresh style. The 1955s were an improvement, but the radical 1957s were destined to be the great leap forward (“suddenly it’s 1960!”). But in the rush to revolutionize, the products were not fully developed, and suffered from atrocious build quality.

The flashy ’57s sold, but word got out and buyers punished Chrysler unmercifully. 1958 sales plunged by no less than 41% for Plymouth. And despite a reputation for engineering excellence, Chrysler would have to dodge a reputation for spotty build quality from then on, deserved or not.

Chrysler nursed itself to health once more, only to be deeply wounded by one of the most staggeringly idiotic acts of executive self-mutilation. In 1960, Chrysler president William Newberg overheard a rumor at a cocktail party that Chevrolet was working on a dramatically smaller 1962 model (it was: the compact Chevy II).

In a colossal blunder, he assumed this referred to the full-sized Chevrolets. Newberg killed development of the full size 1962 Plymouths and Dodges and initiated a crash program for substantially downsized replacements. When the ugly, truncated ’62s were first shown to dealers, an uproar ensued, and twenty dealers cancelled their franchises on the spot. Plymouth crashed to ninth place, while GM’s market share rose to an all-time peak of 52%.

Chrysler barely survived the fiasco but went on to enjoy a relatively long spell of good health from the mid-60s through 1974, in part thanks to its successful performance image. But with a portfolio of heavy RWD cars and lacking the foresight, will (and capital) to retool extensively, Chrysler was flattened by the one-two punch of the energy crises. By 1979, it was back on the critical list, saved from bankruptcy only by the life-support of a government loan-guarantee act.

This financed the compact K-car; Chrysler squeaked by and regained health, once again. Endless K-car variants carried the day. When the 1990 recession brought on another depression, Iaccoca was shown the door.

In the mid-nineties, Chrysler was on its ultimate manic high. Low overhead costs from its near-bankruptcy, some deft model development, the purchase of Jeep, and sheer luck (the boom of the truck and SUV markets) generated huge profits and a 23% market share in 1997 (bigger than GM’s recently). But at the very height of health and success, the suicidal urges return.

In 1998, CEO Robert Eaton had Chrysler engage in ritual corporate seppuku by selling itself to Daimler (while walking away with over $200 million himself). And despite all of Dr. Z’s ministrations, the patient never really regained lasting health. Was there arsenic in the Daimler medicine?

There’s a market for corpses, and Cerberus bit with all three heads at once. And choked.

By on April 30, 2009

Well, the fat lady done sung. Only it was a thin president who ended TTAC’s Chrysler Suicide Watch. Lucky for us (if no one else), the Prez also promised to keep the dead automaker alive, through a fresh injection of federal funds. Obama didn’t specify the price tag for this zombification, but the bidding starts with the familiar “b” word, and octo-mom would recognize the number. As you know, Obama justified his ongoing intervention in Chrysler’s journey to liquidation by pimping the un-dead (now dead) American automaker to Italy’s own automotive English patient. So it’s time to get on with the business of tearing the Fiat “merger” idea to shreds. In this unenviable (but gainful) task, I’m aided by Jennifer Clark of the Dow Jones News Service. Jenny’s Chrysler-on-the-block piece arrives under the odd title “Chrysler Chapter 11 Filing May Aid Fiat Turnaround.” Go figure.

Miss Clark’s analysis begins with some Detroit News-like cheerleading from a hand-picked optimist. “A Chrysler bankruptcy filing could be a wonderful opportunity for Fiat,” said Jerry Reisman, a bankruptcy lawyer at Reisman, Peirez & Reisman, who predicts a speedy procedure. “All of Chrysler’s debt will be dealt with in court, so Fiat will know exactly what it’s buying. It will be a new Chrysler.”

It’s a shame Reisman wasn’t my divorce lawyer. Or, conversely, it’s a blessing. The Chrysler C11 case will involve hundreds of Chrysler creditors. Thousands of Chrysler dealers. Dozens of Chrysler debt holders. And they’ll all be represented by Reisman’s colleagues AND hamstrung by a building full of megalomaniacal bureaucrats. Reisman’s faith that a bankruptcy judge will sort this Fiat-finagled farrago in short order is almost as delusional as Chrysler’s initial hopes for the Sebring.

And the clock is ticking. “How will the company keep going for 18 or 24 months until the new product is brought to market?” asked Mark Fulthorpe, director of European vehicle forecast at CSM Worldwide. “They can’t rely on the U.S. government.” Silly me; I thought that was the whole point. But point taken. Even if Chrysler’s new boss opts for a short-term “solution” to the automaker’s glaring lack of commercially appealing products—say, by slapping a Chrysler badge on an imported Fiat—the federalization process required is neither cheap nor fast.

If, heaven forfend, the Presidential Task on Automobiles (PTFOA) bullies the National Highway Traffic Safety Administration (NHTSA) to relax its rules on product safety, Chrysler would still be SOL (shit out of luck). The move would open the way for Ford to bring over its Euro-models, which would slaughter Fiat’s models in the market.

Or not. There is no proof that anyone’s European models would do well in the US and plenty of indication that the exact opposite is true (Merkur much?) Otherwise, plan B (or plan A as it’s called) calls for retooling American factories to build Fiats. Huh? Why not just improve current Chrysler models? If American automakers should have learned one thing from this debacle, it’s that the constant pursuit of the next big thing puts an automaker on a hiding to nowhere.

And then there are the cultural problems. Let’s assume that the PTFOA is calling the shots at post-C11 Chrysler (only because it is). So now they have to ming with Fiat. And Chrysler’s new CEO (to be named later). And the United Auto Workers. Let’s also assume they can all work together in perfect harmony. Quickly, efficiently and, above all, profitably. And while we’re at it, let’s assume that someone makes a non-fat, low-calorie ice cream that tastes better than Häagen-Dazs ice cream for, I dunno, half the price. Yum.

Funny thing about Häagen-Dazs: it’s a made-up name created by two Polish immigrants in the Bronx. But the branding is killer. As is Chrysler’s, only in the literal sense of the word. Even with Barack Obama personally guaranteeing Chrysler’s warranties, the automaker’s Chapter 11 is the kiss of death. On a corpse, if we’re going down the icky route.

I know: I recommended a ChryCo C11 at the start of the old series. Well, as any S.E. Hinton fan will tell you, that was then, this is now. Now that Detroit has used up all its goodwill by sucking up seemingly endless (’cause they are) subsidies, the stench of bankruptcy is overpowering. If buyers avoided Chrysler like the plague before, they will now avoid the Auburn Hills zombie like Ebola. Which, coincidentally, ends with a vowel, Italian style.

Counterpoint! ”Carlos Ghosn proves it can be done: Ghosn is chief executive of France’s Renault SA and alliance partner Nissan Motor Co. of Japan.” Yes and no. Ghosn brought Nissan back to life, but he didn’t do it by selling rebadged (or retooled) Renaults in the US market. He did it the hard way, through evolution, over time. And Nissan still got slammed by the economic meltdown.

Nope. Chrysler is an evolutionary dead end, a walking zombie waiting for the marketplace to blow its head off. And TTAC will be there.

By on April 30, 2009

Auburn Hills, Mich., Apr 30, 2009  -  Chrysler LLC today announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it has reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a vibrant new company. It will allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat powertrains and components will also be produced at Chrysler manufacturing sites.

“This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages,” said Bob Nardelli, Chairman and CEO of Chrysler. “It enables us to better serve our customers and dealers with a broader and more competitive line-up of environmentally friendly, fuel-efficient high-quality vehicles. Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution.”

Chrysler initiated discussions with Fiat more than a year ago to develop plans for a global product alliance. Over the past several months, these discussions have evolved and expanded. Chrysler and many of its stakeholders worked tirelessly to agree upon concessions that will result in a significantly lower cost base and enable fulfillment of a broader strategic alliance.

“We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep®, Dodge and Chrysler brands as well as parts under the Mopar® brand. Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence,” explained Nardelli.

Despite substantial progress on many fronts, Chrysler was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding. As a result, under the direction of the U.S. Treasury, Chrysler LLC and 24 of its wholly owned U.S. subsidiaries today filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.

“Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat,” said Nardelli. “My number one priority has been to preserve Chrysler and the thousands of people who depend on its success. While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice. “

Chrysler also will file a motion under Section 363 of the Bankruptcy Code requesting the swift approval by the Court of the agreement with Fiat and the sale of Chrysler’s principal assets to the new company. The benefit of this type of filing is speed. It should allow a leaner new company to emerge in a matter of 30 to 60 days, well positioned for long-term viability.

Nardelli, who has been leading Chrysler since August 2007, also announced to Chrysler LLC’s Board of Management and the U.S. Treasury his plan to leave the company following the emergence of the new company from Chapter 11 and the completion of the alliance with Fiat. He will return to Cerberus Capital Management LP as an advisor. “Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.”

During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of “business as usual.” The company will seamlessly honor warranty claims, pay suppliers and keep our dealer body operating to continue to serve our valued customers.

“To create this vibrant new company, we are using this structured bankruptcy to rapidly implement tough but necessary changes, including: the agreed upon wage and benefit structure for active and retired employees that is competitive with those of transplant manufacturers; a reduction of debt and interest expense; the disposition of idle assets; a rationalized and more efficient dealer network; and sound agreements with our suppliers,” said Nardelli.

Chrysler’s Mexican, Canadian and other international operations are not part of any bankruptcy filing.

As part of the restructuring and with the backing of the U.S. Treasury, we have reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.

When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 percent stake. Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat will have the right to increase its ownership stake an additional 15 percent in three increments as it meets the following criteria: 5 percent for bringing a 40 mpg vehicle platform to Chrysler to be produced in the U.S.; 5 percent for providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles; and 5 percent for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles. Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid.

As a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4, 2009. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.

“We want to recognize the Administration, the U.S. Treasury, President’s Auto Task Force, as well as Members of Congress and representatives at the state and community level and Canadian Federal and Ontario Provincial governments for their energy and efforts in helping to move this new company forward,” Nardelli said. “It is also important to acknowledge Cerberus and Daimler, which provided the foundation for the alliance as well as Chrysler’s many other stakeholders including the UAW and CAW leadership, employees, dealers and suppliers. Without their deep sacrifices, unstinting loyalty and enduring belief in Chrysler, the alliance would not have been possible. We look forward to our new partnership with Fiat. To be sure, there will be many changes as we move forward to implement our plans. But today, from many great parts, we begin to build a vibrant new company with less debt, a stronger balance sheet, richer product portfolio, supported by a well-positioned finance company.”

By on April 29, 2009

Barack Obama is set to address the nation tomorrow, announcing Chrysler’s death and rebirth. The president will frame the government’s intervention in familiar terms: hope and change. Only in the reverse order: change and hope. Obama will say that the federal government is helping Chrysler transform into a viable American automaker. This we (yes we) are doing because President Obama has hope for the future of the American automaker and, not-so-incidentally, American automaking. Chrysler, the United Auto Workers (UAW) and Fiat will now build the kind of economical, environmentally friendly vehicles America needs. Unfortunately, Obama’s “plan” is the exact opposite of what it pretends to be.

Chrysler Bailout III represents the protection and perpetuation of the status quo, not genuine change. How could anyone think otherwise, now that The Presidential Task Force on Automobiles (PTFOA) has engineered a deal that gives the United Auto Workers a majority stake in the reconstituted Chrysler? If there’s any one group in the auto industry that has resisted change, that’s opposed root and branch reform, it’s the UAW.

Since the union’s inception, they’ve labored under an ever-expanding set of terms and conditions, that’s now thicker than “Gone with the Wind” and “War and Peace” combined. As you might imagine, none of these endlessly negotiated strictures, mandates, grievance procedures, benefits, entitlements, etc., were designed to engender manufacturing flexibility. They were designed to protect workers from change.

The UAW’s onerous contracts have bolstered a stultified corporate culture that’s both unable and unwilling to foster innovation. You want to change the way I do my job? Take it up with the union. And good luck with that.

Sure, Chrysler’s management bears ultimate responsibility for allowing their union workers to [help] frustrate the company’s overall competitiveness. And no, the UAW didn’t decide what Chrysler cars, trucks, SUVs and minivans to build, how to build them, what parts to use or how to put them together. But no matter who’s to blame for Chrysler’s execrable products, the union is in the business of protecting the union—not finding ways to build better automobiles.

Not to put too fine a point on it, anyone who truly believes that increasing the UAW’s stake in Chrysler will transform union members from legendary foot-draggers to world class sprinters, passing the four-wheeled baton to a freshly energized (Italian?) management structure with speed and grace, is nuts. As in delusional.

Which is a perfect description of President Obama’s “plan” for Chrysler.

Not to coin a phrase, Obama and his PTFOA have failed to hope but verify. It’s one thing to imagine a reborn Chrysler making fuel-efficient Fiats that can sell at enough of a profit to keep UAW members employed and pay off the new company’s $10 billion (and counting) debt to taxpayers. It’s another to think it can actually be done.

Chrysler’s turnaround “plan” involves more variables than a five day weather forecast, from mastering manufacturing logistics in a company decimated by layoffs, to somehow overcoming consumer resistance to TWO damaged brands.

Perhaps that’s why private investors wouldn’t touch Chrysler with a ten-foot spreadsheet. And now, where financial angels fear to tread, the federal government rushes in. To save jobs.  Union jobs.

As I’ve stated previously, the American public doesn’t know credit default swaps from Shinola (another company that went the way of the buggy whip). But they understand that new Chrysler is a union gig. Well, if they didn’t before, they will now, what with the UAW’s 55 percent share of the post C11 company. The question then becomes how much sympathy does the average American—rather than, say, the average Democratic operative—have for the “plight” of the unionized working man?

The answer: some. But not enough. Not enough to go out and buy a new new Chrysler product just because it wears the union label. Especially not now, at a time when the average new car buyer isn’t buying a new car. When they can’t afford to risk their hard-earned money on a vehicle that may or may not be reliable. From a dealer that may or may not be in business next year. And then there are the people who will not even consider buying a Chrysler product because of the bailout.

There’s your bottom line. At the end of the day, after the feds “invest” tens of billions of tax dollars in Cerberus and Daimler’s cast-off, the automaker will live or die based on whether or not American consumers will buy the company’s vehicles in sufficient quantity at a price that allows Chrysler to take in more than they spend. As our Best and Brightest will tell you, without genuine change in corporate culture, without a realistic plan, the odds of that happening are somewhere between none and none.

And so the president will eventually learn—as Chrysler’s previous owners have—that commercial realities can only be postponed not denied.

By on April 28, 2009

GMAC is a bank. It used to be a lender to both the car and mortgage industries. And not a particularly good one. Or, maybe, too good. Or just right if you were a sub-prime borrower looking for quick cash. GM owned all of GMAC, which was a cash cow. Right until it wasn’t. Just before the now-infamous sub-prime meltdown, GM was trying to cover-up its cash burn. So CEO Rick Wagoner sold a controlling share in GMAC to Cerberus, the same people who bought Chrysler. Flash forward to the waning hours of 2008. GMAC was about to fall into bankruptcy, dragging down Cerberus, Chrysler, GM and that funny-looking guy who used to be your landlord. So Uncle Sam stepped in—and how. The Fed relaxed its banking rules so that GMAC could become a bank, and, thus, hoover-up $6 billion worth of bailout bucks. After that, there’s some stuff about ending leasing, not lending money to car buyers, driving Chrysler and GM dealerships into C11, lending money to car buyers, etc. Up to speed? OK. So here’s the New Deal . . .

To facilitate its plans to turn Chrysler into a union co-op, the Presidential Task Force on Automobiles (PTFOA) wants to unload Chrysler Financial on someone. But who in their right mind would take ownership of Chrysler Financial NOW, when the automaker it supports is about to be turned into a union co-op (see: above) and married (con fucile) to an ailing Italian automaker? In the middle of a contracting new car market? That’s abandoning Chrysler in droves.

Actually, it’s worse than that.

Chrysler Financial is running out of money and has had to rely on $1.5 billion in loans from the federal government. The company also has a line of credit from several major banks, but the interest rate is so high that it cannot use the money profitably.

Furthermore, if Chrysler files for bankruptcy, a prospect that many officials say is highly likely this week, the banks can pull their lines of credit from Chrysler Financial.

Bottom line: no one wants this turkey, obviously. Except anyone who wants Chrysler to survive as a going concern, in one form or another. (Don’t look at me.) Make no mistake: if Chrysler Financial flames out, it will take the automaker down with it. Well, unless Uncle Sam comes to the rescue again.

Chrysler Financial afloat still remains critical to the company’s future, some industry and government officials said. A collapse of the financing arm could take down many dealers, which rely on short-term loans to buy the cars that sit on their lots. Chrysler sales could also grind to a halt as consumers struggle to get car loans. In the present environment, it would be difficult for dealers and customers to get financing from banks.

Luckily, the PTFOA has an idea. A wonderful, awful idea! Sell Chrysler Financial to GMAC. Hey, that was Cerberus’ plan all along, right? Combine GMAC with Chrysler Financial and strip and flip the rest? So, let’s do it! I said, let’s do it. And don’t worry: we got money. Or, more specifically, you got money. Which we gave you.

As Mr. Marley used to sing, four o’clock, roadblock. Now that GMAC is a bank, it falls under the purview of the Federal Deposit Insurance Corporation (FDIC), whose sworn task is to keep banks from doing really stupid things like . . . spending money it doesn’t have buying Chrysler FInancial (again ALSO owned by Cerberus). And the Fed, so forgiving and understanding back in late ’08, aren’t playing ball on this one.

Treasury officials have not yet obtained the agreement of the Federal Deposit Insurance Corp. and the Federal Reserve, sources said. The FDIC, created to backstop the banking industry, is balking out of concern that its resources would be drained in support of an auto manufacturer. And the Fed, which regulates banks, would need to grant a waiver from a long-standing rule that separates banking and commerce.

House of cards anyone? Or should I simply say, let the political arm twisting begin! I mean, continue. And I’m glad that PTFOA head Steve Rattner is a former investment banker, ’cause this one sounds like a real bitch to sew together.

Closing a merger between GMAC and Chrysler Financial would require an infusion of new bailout money from the Treasury. The company also needs access to an FDIC program that allows companies to borrow money at lower interest rates, sources said. And administration officials want the Fed to relax a rule that would restrict the amount of loans that the enlarged GMAC could make to Chrysler’s customers and dealers because both firms are owned in part by the same company, Cerberus Capital Management.

Not to be too much of a downer here, but this clusterfuck illustrates the fact that no matter how this shakes out, Detroit’s federal bailout is doomed to an extremely expensive failure. On our dime. Sigh. Chapter 7 would have been such a clean resolution . . . .

By on April 22, 2009

Chrysler bondholders have officially rejected the Presidential Task Force on Automobiles’ (PTFOA) “offer” to exchange 85 percent of their secured debt ($6.9B) for a stake in a reconstituted ChyrCo. The Wall Street Journal reports the bondholders’ counteroffer: the lenders would cut Chrysler’s first-lien debt by $2.4 billion, in exchange for a 40 percent equity stake and a Chrysler board seat. Oh, and they want Fiat to put up a billion dollars. Which Fiat won’t do because . . . it doesn’t have it. The bondholders’ position sounds about right. Remember: this is secured debt. If/when Chrysler is sold off in pieces, the bondholders would recoup about 65 cents on a dollar. Settling for anything less would be against their financial interest. But not their political interest. Not only has the US Treasury rejected the bondholder’s proposal, they’ve cast aspersions on the banks’ patriotism. No, really.

“It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return as Chrysler, its employees and other stakeholders are working tirelessly to help this company restructure,” the Treasury said in a statement.

With just eight days left before ChyrCo’s latest restructuring deadline, this one’s getting seriously ugly. We hear rumors that Chrysler CEO Bob Nardelli is going to resign this week. And there’s plenty of talk from Motown politicians pressuring Chrysler bondholders to suck it up—or face the consequences.

Late Wednesday, Michigan Gov. Jennifer Granholm blasted the banks’ counteroffer, urging them to “do the right thing.”

“They need to collapse their debt as the Obama administration has asked to ensure the viability of the company, which is critical for the families, employees, retirees, dealers, suppliers and others who rely on it,” Granhom said. “To do otherwise is not only disappointing, it is unconscionable at best.”

U.S. Rep. Gary Peters, whose district is home to Chrysler’s Auburn Hills headquarters, called the banks’ offer “an affront to taxpayers” and Chrysler employees and retirees.

“These debt holders were offered fair market value for their debt and the banks have responded by asking for a windfall,” Peters said in a statement.

Windfall? As in undeserved profits? How long before someone trots out ye olde Jewish banking conspiracy? Like I said, real ugly.

Back to the Fiat deal, upon which President Obama so publicly staked Chrysler’s future. The bondholders’ billion dollar “put up or shut up” salvo against the Italians is really just a clever way of saying no freakin’ way.

The lenders also questioned the logic of having Chrysler pair up with Fiat. The Italian company, they said, would bring “negative synergies for the first 3 years” and would enter the alliance with “limited downside for a deal of this size.” Moreover, they said it could result in a “wealth transfer from the U.S. taxpayer to a foreign company of potentially $10 billion or more.”

I spit on you spitting on me for spitting on my country. Or something like that. And wouldn’t you just know it: the PTFOA is, as predicted here, happy to walk away from the $4 billion US taxpayers have already shoveled down the ChryCo rathole. And THEN toss them EVEN MORE money.

The counteroffer also came about a week after the government presented Chrysler lenders with more than 60 pages of financial assumptions for a combined, restructured Chrysler. The government projects that Fiat-Chrysler wouldn’t be able to start making payments on its debt until 2012, said several people familiar with the report.

The government also assumes that the $4 billion it lent Chrysler largely will be wiped out, as will a combined $2 billion Chrysler owes Cerberus Capital Management LP and Daimler AG, Chrysler’s last two owners. The government would then put in an additional $6 billion to fund the operations of Fiat-Chrysler.

Not to mention the $3 billion Uncle Sam would fork over to the United Auto Workers health care fund—cause that would be churlish. More on the unions in another post. Meanwhile, the WSJ saves the story’s most fascinating aspect for the end. It seems that ChyrCo bondholders’ are at war with each other, in a David and Goliath kinda way.

In the red corner: the nestling-in-the-pocket-of-the-feds crew: J.P. Morgan, Citigroup, Goldman Sachs Group Inc. and Morgan Stanley. In the green corner: a bunch of “little guys”: Elliott Management, Stairway Capital Management, OppenheimerFunds, Perella Weinberg Partners and three dozen of so relatively small lenders. Seems . . .

Not everyone was on the same page. The big bank view was “hey guys, the offer back can’t be outrageous. This is the government,” said one of these people. “There were others, smaller lenders, who wanted to be a lot more aggressive.”

In the end, the big banks “came closer to the smaller lender view,” said another person familiar with the talks.

What was that about a nation at war with itself? Anyway, C7 or boondoggle billions. We shall see.

By on April 17, 2009

C’mon. This whole Fiat and Chrysler hook-up is a joke, right? I mean, what could possibly motivate an Italian car company that got its ass kicked seven ways to Sunday in the US market for peddling sorry-ass rust buckets and [almost] providing some of the worst dealer service in the history of four-wheeled transportation to re-enter the fray under the Chrysler banner? That’s like Kodak teaming-up with Polaroid to make high end digital cameras for the Japanese. Like Cambridge’s instant photo folk, ChryCo’s business model is so busted all they’ve got left is an iconic brand name (Jeep). And there are still plenty of Americans who know that Fiat stands for “Fix It Again Tony.” So what’s it all about Alfetta?

Explanatory theories are floating through the autoblogosphere. The Fiat – Chrysler plan is an Italian head-fake. They’re having a peek at what they can buy when pennies from C11 heaven start to fall. Or Fiat’s “rescue” plan is a cunning ploy to use U.S. taxpayer money to fund Fiat’s American aspirations. After all, they got $2b from GM for not merging with GM. With inflation, that’s got to be worth at least $8b in today’s freshly-printed dollars. And then there’s a far more likely motivation for all this Mopar madness: ego.

The US car industry is a “yeah, too quiet” kinda place these days. The Presidential Task Force on Automobiles (PTFOA) has done the cappo si tutti cappo thing at GM: silencing Car Czar Bob Lutz and cashing ex-CEO Rick Wagoner’s bankruptcy-proof pension check. Wagoner’s clone, an overpaid caretaker who goes by the name of Fritz Henderson, has all the charisma of four-day old cod fish.

Ford CEO Alan Mulally is the same again, only fresher and more swordfish-like (if you know what I mean). And having learned that discretion is the better part of a $240m severance package, Chrysler CEO Bob Nardelli has sent out a memo saying, “Him! Let him run the company! Or them!”

In short, the American automotive industry doesn’t have a single charismatic spokesman at this, its hour of need. Which no doubt suits PTFOA chairman Steve “Chooch” Rattner. But it doesn’t alter an immutable fact: the auto industry is an ego-driven business.

Remember when we were discussing the strategy of Kirk “The Lion of Las Vegas” Kerkorian (ready to chill with Walt Disney), as his major domo (arrigato) Jerry York joined GM’s board and told them to sell something, anything, before the lights went out? Or the going, going, Ghosn GM – Renault merger?

That was then, and this is now. Now we have Sergio Marchionne. The Italian auto exec’s stolen the spotlight. He’s busy holding court—I mean chairing meetings. Issuing pronouncements. Making ultimatums. Flying hither and yon in Fiat’s private jets (yes, they still have them). Scheming. Dreaming. Coveting ChryCo’s CEOship. And putting on a show for Fiat’s shareholders.

To wit, the Wall Street Journal reports that “Italian carmaker Fiat SpA (F.MI) shares surged over 10% in Milan Friday, as investors expect a deal between the Torino-based company and Chrysler to be finalized by the end of April.”

How a ChryCo hook-up will help Fiat’s CEO achieve his profit target ($1.3b for 2009) in this moribund market is anybody’s guess. But the limelight does wonders for Marchionne’s rep in his native Italy, insulating him from the sales disaster waiting for Fiat’s politically-fixed sales incentives to expire.

Lest we forget, Sergio is, like Wagoner and Henderson, an accountant by training. Who started his career as a tax specialist. In other words, Marchionne’s a man whose craves attention not to say adulation. Which motivates the Canadian – Italian to rush in where any sensible corporation fears to tread. No, really.

“Canada was a mixture of pain and pleasure for the Italian teenager,” Canada’s Globe and Mail reported in a Marchionne profile. ‘Trying to get friendly with girls with whom you cannot communicate was a problem,’ he said.”

Surely this isn’t all about appearances, is it? Don’t call Sergio Shirley.

“The [Fiat] board room has a frescoed ceiling that would not look out of place in the Vatican Museum,” the Globe reports in a more recent article. “Coffee is served in fine china on a silver tray. The employees make sure the place is well stocked with Murattis.”

And so, here we aren’t. Chrysler’s private equity owners tried to dump the failed American automaker on China’s Chery (Hornet much?). Cerberus then tried to off-load their automotive non-fortunes onto Nissan (Hornet that, Titan this). And now they’re trying to palm off the whole schmeer on Fiat. Well, the U.S. government really. With the help of an egomaniacal Italian who either knows better and doesn’t care, or should.

Of course, you could say that the same thing about all parties concerned with this, Chrysler’s final fling, before it slinks off into that long goodnight.

By on April 4, 2009

A TTAC reader writes: “Did you read the Wards AutoWorld article about how full Chrysler’s product pipeline is?  So inaccurate. I had to throw away the magazine because of it.  As a former product planner for Chrysler up until April of last year (on the Jeep WK (Grand Cherokee)), I can tell you the state of the business that I knew.

There was plenty of pinching on the interiors of the cars. We called it the “thousand dollar challenge;” which included reducing the amount of leather in the car seats (think lower back and where your butt is, but not the back of your thighs; all else vinyl). At the same time, unrealistic volumes were driving business decisions, with calculations for how JNAP [Jefferson North Assembly Plant] will be filled on three shifts for WK, endless management reviews and preparation for management reviews—leading up to a canceled product (CT, WC).

Chrysler tried to make product lines profitable by figuring out how to maximize profit by take rates and bundling. Eliminating an engine on the vehicle ultimately makes sense for reduction of complexity, but from a business case perspective, it is almost always negative (upcharge on the optional motor).

Now working in a different industry altogether, I get a sense of just how management-focused Chrysler had become. That is something the Germans can take credit for. There’s much more structure in the product development process, with the resultant inability to make a decision and endless preparation for meetings.

The “dream team” that Cerberus built was not. Specifically, the two Toyota execs were remedial. Jim Press was well liked internally, but Debra Meyer was not overly bright. She spoke and presented well, but she didn’t know cars.

I hear now that if you discuss the understaffing of ENVI relative to their proposed task you face retribution. I’ve also heard that the Jeep Patriot concept car/electric vehicle was nothing more than an interior (with cool cluster), Viper style wheels, and some other minor stuff. Nothing electric about it. Good PR tho.

They actually lost almost 35-40% of their staff in the Nov 26 buyout of white collars, not including the additional 10% they retired early (totaling then almost 50%). Of my product planning department, exactly none were left.

Brand Management and Product Planning have since been merged, an event that took until January to announce. They lost a month because they didn’t know who was going to be left, they didn’t tell people before they made a decision what was to be their future etc.

Look what happened to Mopar guys. They were mostly contract guys working for a 93 grade band supervisor. They outsourced all of the jobs to suppliers and transferred some of the contract guys over there.

XXXXXX XXXXXXX  was one of the suppliers (plastic injection stuff among others). They told their guys that they were not able to work them the full 40 hours a week due to financial limitations (payments from Chrysler?) and that they’d get one day off a week (in addition to the 10% pay cut). THEN they said you need to work five days a week and simply book those comp days for the future (where you’ll never get to use them).

They really don’t have any idea of how to approach their business. They are building a WK (2- row only), a WD (3-row Dodge), an LX that the dealers council said needs to look more different than the existing model (the one that they showed in the filing to the government to get more dollars was the revamped one, the one before was even more vanilla but not much different), and no other product that I am aware of.

I heard (was not directly involved) that the D-segment quotes from Nissan were within single digit dollars of their projected internal costs to do it inside. With only 100 people on that platform working previously, they were definitely going outside. Now virtually all of those people are gone (retired or bought out).  Normally 600–700 are required on a platform.

Internally, a platform’s profitability depends on how much overhead is assigned to it. The WK  was over-assigned overhead, to the point where it was always negative. Usually it was based on sales + an arbitrary amount decided by management. The WK was always under water with the fully accounted system we used (DCAV). But I think it was an attempt to make the platform stretch for profitability (hence the unrealistic volumes).”

By on January 26, 2009

According to Automotive News, Chrysler plans to sell up to seven Fiat/Alfa Romeo-designed models in America. Under this scheme, Chrysler dealers would flog the Fiat 500, Alfa MiTo, and Alfa 147 replacement. There’ll also be up to four Fiat-based cars in the A, B, C, and D segments. Some American car fans are thrilled at the idea of inexpensive, fuel efficient, fun-to-drive Italian cars — even if the machines in question end up as Dodges built in Mexico to Italian blueprints. But that’s exactly what it is: an idea. And a bad one at that.

The Chrysler – Fiat deal is a lot less than meets the eye. Most importantly, Fiat isn’t putting a dime on the table. All the costs of converting any given Fiat/Alfa to a Chyrsler and/or Dodge product would be borne — again, in theory– by Chrysler. Given Chrysler’s cash position (i.e. none), given the complexity and expense of creating even ONE car for the U.S. market, given the cultural and corporate communications hurdles involved, Chrysler’s promise to deliver the fruits of this alliance in two years is as optimistic as their electric car “program.”

But let’s say Chrysler and Fiat could wave a magic wand and place these American-Italian cars into Chrysler/Dodge showrooms tomorrow. Would they sell?

The U.S. economy is in a deep recession. By many accounts, it’s going to be worse still. Any sort of recovery is at least 12 months away. With the rest of the world in a similar position, gas prices are likely to stay low. And that means sales of small cars and fuel misers will continue to sink– relative to a sinking market. If you look at the sales of Honda’s well-established Fit for example, it’s not a pretty picture.

Even if California’s new fuel economy standards suddenly arrived in the same fantastic manner to force consumers into smaller cars, the poster child for this new alliance– the Fiat 500– would be a modest flag-bearer at best.

Sure, the 500 could become a relatively inexpensive version of the iconic MINI. But to help Chrysler out of its deep hole, the 500 would have to sell over 100k units per year, at a significant profit.

Lest we forget the U.S. market is choked with new cars. Prices are down and going lower. Ford’s upcoming, less-expensive Fiesta faces an uphill battle for sales, and Ford doesn’t face the same problems of collaboration. And that’s without considering the long, slow process of resurrecting Chrysler’s brand. With a Fiat no less.

Even if Chrysler gets around to finishing design work on these new cars, what happens after the enthusiasm/sales from Italiaphiles and car fans dries up? I repeat: Italian cars have a terrible reputation for quality and reliability in the U.S., regardless of the present-day reality. Fiats may last for 250k miles in Brazil, but it won’t matter to American consumers that can only hear “Fix It Again Tony.”

It also is worth noting that even in Europe, Fiat and Alfa Romeo residual values are among the worst on the market. While the 500 and Panda have been solid, the bulk of Fiat’s cars’ resale values are absolutely atrocious. Poor residual cars in Chrysler dealers? Not exactly a new news story. But neither is it a road to redemption.

The worst part of all this: Chrysler expects the American taxpayer to pay for this so-called strategy. Since the moment Chrysler felt the need to hit-up the U.S. taxpayer for $7b, the company’s owners have refused to invest any additional money into the failed enterprise. So we can assume they’ll give this brilliant plan, this awesome alliance, a similar amount of financial backing. If it’s not good enough for them, it’s good enough for you? Fool me once…

The news coming out of New Orleans today: Chrysler promised dealers it’ll still be around in April. The only way that’s “good” news is if the presumption among Chrysler dealers is that the company actually has less than three months to live. Is Chrysler-on-federal-IV-fluids going to be around to produce Fiat-designed cars that, well, haven’t yet been designed? I’m thinking no.

The Chrysler – Fiat deal only makes sense on a superficial, 24-hour-news level of analysis. Chrysler is in bad shape, Fiat has been touted (prematurely) as a European success story. Chrysler has no small cars, Fiat does. Fuel economy regulations are set to increase, and President Obama has just scared the heck out of car manufacturers by, ironically, applying a States’ Rights approach to future fuel and emissions policies.

From a product standpoint, media pundits can be forgiven for thinking that the pieces fit together. Unfortunately, they don’t. Since so many of these collaborative automotive projects end before or when the first product hits the showroom floor, it’s unlikely to matter.

[TTAC's reviews of the Fiat Panda 4x4, Alfa 147 and Fiat Grande Punto]

By on January 20, 2009

Breaking news: Fiat has just signed a “non-binding term sheet” with ChryCo. The Italian automaker will acquire a 35 percent interest in Chrysler for… nothing. No cash. No assets. Niente. And yet the Chrysler - Fiat deal comes complete with the United Auto Workers’ (UAW) blessing. It’s a nice thought: a global alliance to pull Chrysler’s fat from the fire, save the taxpayer’s bacon and uncook the UAW’s golden goose. But there’s zero chance of Fiat riding to the rescue of Chrysler. It’s just another part of Chrysler’s Big Lie.

Adolph Hitler said The Big Lie was effective because most people “would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.” In this case, the lie is the idea that Chrysler is a viable automaker.

The fact that the company is utterly bankrupt without any chance of recovery is, obviously, besides the point. As long as there is hope that Chrysler has a future, the general public and their fear-mongering elected representatives will cling to the fiction that Chrysler can– indeed should– continue to exist.

To perpetuate that myth, to protect its federal lifeline, Chrysler must generate plausible possibility. Hence the stream of “news” coming out of Auburn Hills in recent weeks. Canada’s Magna Corporation may purchase Chrysler’s minivan plant. Nissan may produce a small car for Chrysler, and rebadge Dodge Ram pick-up trucks as Titans. A Chinese carmaker may buy unwanted (not to say unused) tooling for the soon-to-dead PT Cruiser. And now… Fiat buys into Chrysler.

In reality, Magna may want Chrysler’s Windsor minivan plant, but the company isn’t stupid enough to pay anything for it. Not when they can pick it up for pennies on the dollar after ChryCo’s collapse. In reality, Nissan is in deep trouble; it’s not going to build anything for Chrysler without [non-existent] cash on the nail. It’s also in no position to remount an attack on a market segment that’s both crowded and cratered (just ask Toyota).

In reality, China doesn’t need the PT Cruiser. And in reality, the Fiat deal has nothing to offer. Without any cash investment by the Italian automaker, without a single production-ready Italian vehicle on the horizon to lure Americans into empty, abandoned Chrysler showrooms, this non-deal does nothing whatsoever to ensure Chrysler’s long term viability.

The underlying causation for this non-news is simple enough. Lipstick. Pig. Apply.

On February 17, Chrysler will present their term paper to Congress: “How I Spent Uncle Sam’s $4b” (a.k.a. “The Three Headed Dog Ate my Automaker”). Chrysler’s representatives will attempt to prove that the company can [now] be restructured and resurrected to live a long, happy life. See? Things are happening! We’re building for the future!

Of course, Chrysler’s “business plan” was, is and will be complete BS.

CEO Bob Nardelli knew Chrysler was doomed to the dole back in December, back when he told Congress his employer could turnaround Chrysler’s fortunes with “just” $7b worth of federal loans. As is the way of such things, that was then. This is now. By mid-February, Boot ‘em Bob’s boys will unveil phase II of their grand plan for Chrysler’s renaissance: get out of the manufacturing business.

The new plan is the same as the original plan: keep the brands and distribution network. Sell vehicles made by others rebadged as Chryslers. Limited capital and engineering required.

Meanwhile and in any case, Chrysler needs the same lifeblood as any other going enterprise: cash. Badge engineering and branding be damned; new car sales aren’t going to provide Chrysler with the funds it needs to sustain its operations and pay for its ongoing liabilities. Not now. Not later. Most likely, never. Asset sales won’t do the job, either. And Fiat’s sure as Hell not providing operational liquidity.

Blow away the smoke, pack away the mirrors, allow owner Cerberus to insulate themselves from accountability for their actions, and it’s clear that Chrysler has one source– and one source only– of cash: the U.S. taxpayer.

As any good politician knows, to fool some of the people all of the time, you need to change your story frequently. In other words, The Big Lie must be sustained by a steady diet of big ideas.

When it comes to Chrysler’s ongoing call on the public purse, the biggest of these is the Chrysler – GM merger. The concept: forget Chrysler and GM. We need to save American manufacturing! This American Leyland strategy is a stupendously bad plan which would make The General like Citibank: a company too big to fail with operating divisions that can never be properly integrated.

Which is exactly why it’ll happen.

By on October 31, 2008

Chrysler is dead. Look for a Chapter 7 filing soon; that’s a liquidation plan, not reorganization. The judge will part-out and sell ChryCo’s few valuable assets to the highest bidders. There will be no “Hail Mary” pass to General Motors, no government rescue, no money from Cerberus to keep its corpse from the grave. Yes, the mythical three-headed dog of Hades does keep souls from escaping Hell, try as they might.

Despite GM’s desire for the $9b in cash supposedly on Chrysler’s books, the money comes with even bigger liabilities: health care, pensions, taxes, supplier obligations, the works. In fact, Chrysler is saddled with as much as $27b worth of claims. Those claimholders have no interest in letting Chrysler unwind in the hands of GM– which would keep all those claims unpaid. Better to just get it over with and pay it out now. The best idea for Chrysler is, was and will be immediate liquidation. Add the proceeds from the sale of Chryco’s assets to that cash pile and there might be as much as $20b+ to disburse.

The first ones to dine on the cash are Chrysler’s lenders, led by Goldman Sachs and JPMorganChase. They originally lent Cerberus about $10b or so to fund the acquisition from Daimler, with the hopes they could then sell the debt off to bigger schmucks. Well, they mostly failed at selling it, unloading only a portion, maybe about 40 percent (or so we’ve heard) at discount to some greater fools.

The banks are still stuck with the rest and they aren’t happy about it. If you were a sane banker in troubled financial times, would you transfer your repayment risk to General Motors, an equal if not even worse credit than Chrysler today? GM was counting on a government loan to GM to pay these lenders off– or at least guarantee their debt. Give Hank Paulson credit; he simply said “no way.” The Feds aren’t gonna take the heat for paying Wall Street off while jobs are lost.

So no, the bankers will never agree to a GM-Chryco Motors tie up. Better for them to take the priority position they get in liquidation today and take what they can. After all, Chrysler’s cash pile only gets smaller every day Chrysler continues to operate.

The second group that has a claim on Chrysler’s cash: vehicle owners. Yep, warranty claims out into the future. Remember, most recent vintage Chrysler vehicles (in service beginning in 8/07 and later) have powertrain for life warranties. The bankruptcy judge has to set aside funds to cover those claims. Say… $3b worth.

The third group: labor. The United Auto Workers (UAW) negotiated a contract that requires Chrysler to shovel $10b into a health care trust (a.k.a. VEBA) for retirees. Even the UAW wasn’t crazy enough let GM takeover Chrysler and absorb this liability when GM can’t even pay what it promised to the union. In any case, this is an unsecured claim. It’s doubtful the UAW could legally stop a sale to GM, but they can make life unpleasant for an automaker.  Heck if the workers are going to lose their jobs anyway, they might as well get what they can now for retirees.

And last: working capital claims for the balance. Unpaid vendors, employee wind downs, taxes, and the rest. Maybe another $4b or so. All told, $27 billion in claims against the cash plus whatever the Court can sell the rest of the assets for. Call it $10 to $15b. Best of all, assets sold out of bankruptcy come with no liability tail for the buyer, which make them much more attractive. No pension obligations, no warranty claims, no retiree health care. Clean and simple. And you don’t even have to take the UAW contract!

I reckon that there are four major components of Chrysler that will get sold. First, the Jeep brand. Although known worldwide, it really has only has one unique product (the Wrangler). But it’s cheap to build, generates a ton of profit per vehicle and will never go out of style. Yep, wrap that up. Maybe it’s worth $3b?

Second, the minivan biz. Already having consolidated assembly in one plant (Windsor), it’s easy to just supply other automakers like GM and VW. Hmm, do I hear Magna calling? So let’s say it’s worth $5b.

Third, RAM trucks hecho in Mexico. Nissan needs a truck and they’ve already agreed to buy their next Titan built in Chrysler’s Saltillo plant. Ok, so maybe it’s 100k units per year only. Might as well buy the plant and the rights to the truck. How much did it cost Toyota to develop the Tundra and build its now underutilized San Antonio truck plant? Let’s put a $2b price tag on this.

And fourth, Chrysler’s parts supply division. I don’t know how many Chryco rigs are on the road, but they’re going to need parts for a long time. Existing parts inventory that’s worth something plus profits from sales that will continue for years. So we’ll put a $1b price tag there.

So are you getting my drift now? There’s no GM-Chrysler deal ever. The government can’t stomach funding a deal where jobs are lost with taxpayer money. Better to shut Chrysler down in bankruptcy, and let Cerberus lick its wounds. Those jobs were going to be lost with or without GM in the picture.

By on October 17, 2008

The auto news biz is abuzz with rumors of Chrysler’s endgame. Even a quick scan reveals that there are more potential scenarios and pitfalls than Operation Eagle Claw, America’s ill-fated attempt to rescue its hostages from Iran. Cerberus trades Chrysler to GM for GM’s remaining share of GMAC. Chrysler sells Jeep to Renault and the rest to GM. Chrysler parts out the company and THEN declares Chapter 11. But no matter how this plays out, foot soldiers will be sacrificed, the American auto industry will remain bound and gagged and the generals will get off Scott free.

Let’s start with what we know. Cerberus never intended to run Chrysler as an automaker. As Ken Elias pointed-out in his GM Death Watch, right from the git-go, the automaker’s most recent owners have starved Chrysler of all the investment necessary to run Chrysler as a going concern. In that sense, they lied to union workers, white collar employees, suppliers, dealers and customers. And the media bought their lies like a teenager purchasing a pack of condom with a knowing cock tease by his side. Hey baby, are you into EVs?

Now that Cerberus has been unmasked by the rest of the media (TTAC called the finance company’s play a strip and flip even before the sale was complete), we also know that Cerberus wants the Hell out of Chrysler, and soon. When Chrysler CEO Bob Nardelli famously pronounced that his employer was “operationally bankrupt,” he wasn’t kidding. The automaker’s truck business is dead, their car business is deader and the finance part of the program is the deaderer (apologies to Andrew). There is no there, there; and the red ink won’t stop spurting until Chrysler bleeds out.

So, assuming Cerberus hates carmaking and wants out now, what to do, what to do? There are three likely scenarios.

First, sell it to a sucker. I break with Mr. Elias’ view that GM will “absorb” Chrysler to ensure a prime position at the federal bailout trough. As PCH101 points out, GM is already too big to fail. In terms of public perception, the idea that GM is “healthy enough” to buy Chrysler (a dumbing-down of the concept, but there you go) would undermine its claims against the public purse. So who else? Renault? No. A Chinese automaker? Nope. In this market, no one. So fuhgeddaboutit.

Second option: Cerberus toughs it out. It keeps Chrysler until the industry shakes out and picks-up, and then sells it to whoever is left for whatever it can get. At this point, Chrysler would need federal “assistance” to stay in the game. The fact that ChryCo offered the media some cod-electric vehicles– pitching for part of the existing $25b federal loan program– shows that the company is ready, able and willing to steal borrow money from Uncle Sam.

I also disagree with Ken’s contention that the feds couldn’t loan bailout billions to Chrysler because it’s a private equity firm. If AIG execs can receive federal “intervention,” spend $1m on company pedicures and not be strung-up from a light pole, why should the fact that a guy who skis in Gstaad owns Chrysler make any difference to bailout boosters? As twisted as it sounds, a Chrysler bailout also sounds fair. If we give a loan to GM, why NOT Chrysler? Chrysler’s got history. “We made the feds a PROFIT the last time ‘round. And, lest we forget, Cerberus has plenty of good friends down in D.C.

If, however, Cerberus needs or wants a right now solution to their problems, bankruptcy is it. Or Chapter 7. Either way, option three is the fastest, cleanest and, possibly, cheapest option.

I know: I predicted a ChryCo C11 for late July. But unlike GM’s point-of-view, bankruptcy protection is ALWAYS on the table for Cerberus. Cerberus bought a controlling stake in Houston-based mortgage lender in 1998. Aegis ceased operations in August 2007. When Mervyn’s department-store chain (part-owned by Cerberus) hit the skids this summer, Cerberus pulled the plug and filed for C11. This very day, Mervyn’s filed for Chapter 7.

So which option is Cerberus pursuing? I reckon it’s all three at the same time. The big news here: Reuters reports that Cerberus is negotiating with Daimler to buy back the German automaker’s share of the American company. ALL of these exit strategies depend on Cerberus owning 100 percent of Chrysler.

No matter how you look at it, Chrysler is attempting to kill itself. Of course, there are some big winners in all this: JPMorgan and Citigroup (representing Cerberus) and Morgan Stanley and Evercore Partners (representing GM). The fees involved in keeping Cerberus’ options open must be astro-friggin’-nomical (and the meter’s already running). Another winner: the transplants. Chrysler’s slow bleed lets them gradually increase their share of the American without anyone noticing. How sad is that?

By on August 28, 2008

BOZELLA John TThe following Q&A was published on Chrysler's Firehouse media blog. TTAC republishes it here in its entirety, without editing, to provide insight into Chrysler's call on the public purse, and the ailing automaker's plans for the future. Such as they are… "The campaign season is in full swing, with the Democrats holding their convention in Denver this week, and the Republicans meeting in Minneapolis-St. Paul next week. John Bozzella, Vice President of External Affairs and Public Policy, will be at both conventions, hoping to win over Congressional support for funding the auto industry’s technology transformation to build a new fleet of fuel-efficient vehicles. We talked to Bozzella from Democratic Convention in Denver about the effort.

Q – Why are you in Denver this week and what are you hoping to accomplish?

Bozzella – We’re in Denver for a number of reasons, most importantly, to work on funding this important technology partnership between the auto industry and government. This partnership will drive forward advanced and alternative propulsion systems at a time when it’s particularly important to deliver improved fuel economy in our vehicles, while reducing greenhouse gases. We have an opportunity this week with the Democrats in Denver, and we’ll be going to Minneapolis next week to meet with Republicans and make our case. We hope to build some momentum to get this technology partnership funded before next year.

Q – Why would something like that be important to both the country and consumers?

Bozzella – The auto industry is an important contributor to the U.S. economy. Not just regionally, but nationally, through dealerships, parts suppliers, etcetera. Millions of jobs depend on a healthy U.S. auto industry.

At the end of the day, the ability to develop and produce this technology ourselves, and here in the U.S., will produce value across the economy. A home grown solution for batteries and other advanced technologies will impact far more than automotive manufacturers. It could also provide a much needed financial shot in the arm to the millions of others who are involved in the development and marketing of the technologies. That means jobs and a boost to our economy.

Also, let’s go back to last year. Chrysler supported a broad energy bill last year that included significant increases in fuel economy standards over the next 10 years. We were pleased to support that initiative. The bill also included a partnership to transform technology and to support the industry during its retooling to produce more fuel-efficient vehicles. We supported the whole bill which includes both of those provisions. If we go back to last year when that bill was signed, it was recognized by us and by the Administration that that was an important initiative and a critical partnership.

This partnership provides loan support to allow us to continue to make these multi-billion dollar investments, to continue to transform Chrysler and the industry at a time when the capital isn’t available to do so. That’s why it’s important to Chrysler because it gives us the access to capital to drive ENVI, to drive our hybrid strategy and to continue to make progress across the fleet on fuel economy. It’s important to the country because we can’t make progress on energy security and reducing greenhouse gases without a significant contribution from the auto industry.

I would add that there’s also a national security component to this. What would happen if the United States completely gives up its manufacturing sector? What would happen? We have as a nation, especially in the last century, called on the auto manufacturers to be the arsenal of democracy and to really provide huge military support during times of crises. That’s another element to this, to retain this manufacturing capacity, and we’re going to develop an advanced manufacturing capacity at the same time.

Q – Some call this a bailout. Is that right?

Bozzella – What we’re talking about is this is a partnership for technology transformation. By partnership, what the government is doing is providing loan support. This is not a blank check. This is not a Freddie Mac and Fannie Mae exercise. This is a partnership and providing loan support at a critical time to improve the country’s fuel economy. The notion that this would be considered anything other than a partnership seems beside the point to me. Last year, when Congress enacted this bill and the President signed it, nobody called it a bailout then. Back in December of 2007, I never once heard that word. Never once heard it. If it wasn’t bailout then, how is it a bailout now?

We have set a course to dramatically increase fuel economy in this country through increases in CAFE standards. What we have said in response to that is we are all in – we are going to deliver it, we are going to do it, and we are going to move forward. What Congress also said is let’s form a partnership to ensure that we in the United States have the capacity to have this technology leadership here. That’s what we talked about last year, and that is what we’re trying to finish this year. We’re finishing that business, and it is nothing more or nothing less than completing the lap on what was established last year.

Q – It sounds like you’re getting some political support this.

Bozzella – We’re seeing momentum to get this done. The support for this was bipartisan when it was enacted last year and remains bipartisan today. And also, we see support in both Houses. We are hopeful that we can complete the funding of the program this year.

Q – You’re also seeing some support in the press for this. One example is a blog by CNBC reporter Phil LeBeau. You can access LeBeau's blog "The Big 3 DO Need Federal Help" by clicking this link)

Bozzella – I think he framed it in a very appropriate way. What he’s essentially saying is, let’s not call this a bailout, let’s call this what it is, which is a significant and robust partnership to make sure we make progress as a nation. I can’t think of a more appropriate role for government – in contrast to bailing out the industry, provide support for the industry as it transforms itself. That’s the point we’re making. You can make a fairly strong contrast between a blank check-type bailout, which we’ve seen in recent months in some sectors of the economy, and a program that helps the industry transform itself."

By on August 8, 2008

What do you get when you Ram a Titan?Chrysler doesn't do well outside it own backyard, or play well with others. The American automaker's attempts to expand globally in the early ‘60s ended with Chrysler selling their European operations (Rootes Group, Simca and Barreiros) to PSA Peugeot Citroën. In the 70's, Chrysler off-loaded their Australian subsidiary to Mitsubishi. ChryCo's last U.S. partnership with a Japanese manufacturer (Mitsubishi again) ended on less than cordial terms. The "merger of equals" with Germany's Mercedes-Benz almost [may actually have] killed it. So why would Chrysler entertain the idea of another off-shore partnership? And why would Nissan ever want to partner with an automaker as moribund as Chrysler?

Chrysler has inked an agreement with Nissan whereby the Yanks will build a full-sized pickup to replace the transplant's dead-in-the-water Titan. Should the deal come to fruition, Nissan will be "free" to stop producing their four-wheeled Dodo. They can then convert their Mississippi Titan plant to produce more commercial, commercial vehicles.

In return, Nissan will build a small car for Chrysler. And now, even as Chrysler says they have "no new alliances" to announce, the media suggests that Nissan will also build some version or another of their Altima midsized sedan for Chrysler dealers. Although the move transforms the much-touted "Project D" into "Project Dead," the automotive "outsourcing" would save Chrysler tens of millions of precious dollars in product development. Oh, did I mention Chrysler's contract with China's Chery to produce a subcompact for Dodge? Same deal.

Connect the dots and you have the meta-strategy outlined here before: Chrysler as K-Mart. It's only a matter of time before ALL of Chrysler and Dodge's products would be, in effect, store brands: other people's products labeled as Chryslers/Dodges. IF it has the time, Chrysler will maintain factories for their truck lines (operating at a reduced capacity) and get out of the automobile manufacturing business entirely. 

So what's in it for Nissan? A line of rebadged Nissans may sound like just what the doctor (Z) ordered for Chrysler, but what chance does a Nissan badged Ram have?

History says not much. In the ‘90s, Ford assembled and sold the first generation Nissan Quest minivan as the Mercury Villager. Splat! After 2002 Ford and Nissan went their separate ways. In fact, American-badged versions of imported brand vehicles have always sold poorly, especially compared to the original. Think Quest/Villager, Matrix/Vibe, Eclipse/Talon, Corolla/Prizm.

Likewise, the import-branded version of American trucks have been sales zombies. Chevy Colorados did nothing as Isuzus. The Ford Ranger goes nowhere as the Mazda B-series. The Dodge Dakota sells even more poorly as a Mitsubishi Raider. A Nissan Dodge Ram might do better than the Titan, but that says nothing good about either truck.  

One can only surmise (as many have) that Nissan's simply testing the waters, trawling for the remnants of Chrysler's production capacity, easing the eventual hauling-up of same. One can also look at history and see why Nissan would consider cozying-up to Chrysler: the company's [once and sole remaining] "crown" jewel. Jeep.  

Obviously, DaimlerChrysler/Chrysler has done much to damage the iconic brand. Jeep sales are down 21.2 percent year-to-date (YTD). The Commander (down 54 percent in July) and the Compass (down 45.9 percent in July) are disasters. And yet the not-so-great Jeep Patriot is up four percent last month. The model offers proof– if proof be needed– that Jeep remains a powerful brand with excellent potential.

European and U.S. fuel economy regulations or no, with Nissan's connections in Asia and Renault's presence in Europe, a Nissan-owned Jeep could become a world-wide brand. Yes, Jeep's cursed; every company that's bought it has gone to the wall or belly-up at some point. But the brand still sings its siren song, all these years later.

The question is, of course, can Cerberus hang on long enough to strip and flip Chrysler/Jeep outside of C11? Moody's just downgraded ChryCo deeper into junk bond territory and bestowed B2 status on Chrysler Financial. Cerberus isn't in the habit of losing money. They'll have to do something soon. Selling off Chrysler NOW seems to be the best way to stop the cash hemorrhage.

Nissan isn't stupid enough to swallow Chrysler whole (especially bits and pieces can be had for pennies on the dollar). Nissan would end up with unneeded production capacity, outdated factories, the UAW, segment-trailing models and an executive staff that seems to excel at losing money. Other than the full-sized truck lines and Jeep, everything else would be surplus to requirements. Any thought of taking Chrysler back upscale would run headlong into Infiniti.

Nissan's supposed production agreements with Chrysler give Cerberus more credibility (i.e. time) with its financial backers. They also give Nissan a chance to see what's under the hood before the auction starts. It's a win – win situation– until someone loses. Whatever happens, that won't be Nissan. 

By on July 26, 2008

Courtesy blackcommentator.comChrysler 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?

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