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.

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?

The 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."

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. 

Chrysler Financial has pulled the plug on new vehicle leases. Given ongoing bankruptcy rumors, the automaker’s co-Prez immediately manned the PR barricades. Jim Press reassured the world that Chrysler is simply diverting lease subsidies into “traditional financing.” That way, “many customers” could enjoy “about” the same monthly payment that they “would have had” in a lease. Meanwhile, ChryCo spokeswoman Shawn Morgan sang the same old song. "Despite the challenges, Chrysler continues to meet or exceed its plan on all financial metrics." C’mon, really?

Talk about the smartest guys in the room! This statement assumes that Cerberus Capital Management knew the U.S. new vehicle market was about to implode when they bought Chrysler in spring 2007. If so, talk about disinformation! At the time of Chrysler's purchase from Daimler, Cerberus Chairman John Snow said: "Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry."

Inherent maybe. But since that fateful day last August when Cerberus took ownership of the Pentastar, the domestic auto market’s gone south. South Pole in the winter south.

In fact, truck and fleet car-heavy Chrysler couldn’t be worse positioned for the economic downdraft. Its cash cows are dead; the slaughterhouse is backed-up with carcasses. Their revamped minivan is selling less briskly than the model it replaced. The new Dodge Ram is scheduled for a fall launch, but it won’t/can’t get out of the gate unless dealers can get rid of the old Rams– which are stockpiled to fences. Many Dodge dealers have trucks on the ground that have had birthday celebrations.

The numbers speak for themselves…

In the first half of 2008, ChryCo sales slipped some 250k units compared to ’07. That’s roughly a 22 percent decline. Chrysler’s truck sales are down 25 percent, the biggest loss of any major truck maker. The automaker’s overall market share has dropped 1.8 percent; it’s now less than 12 percent. We already know the impact of sagging sales and lost market share on Ford’s financials. Does Chrysler CEO Bob Nardelli really expect us to believe that his employer’s been meeting or exceeding its projections? 

To accept that assertion we’d have to ignore Daimler’s Q1/08 public financials. These stats suggest that Chrysler Holdings (including the automotive ops and the finance arm) lost a staggering $2.9b in a three month period.

Not at all says Chrysler. Daimler included a whole bunch of items which cannot be used to make such a calculation. We lost only $509m. One of those “excepted items” includes a $200m difference due to US and Euro accounting standards. So Chrysler didn’t recognize certain expenses but Daimler did? 

You’d be forgiven for thinking that under a more "aggressively conservative" accounting approach, Chrysler Holdings lost $700m in the first quarter, maybe more. Any way you cut it, it;s bad. Yet all we get from the CEO's office is an exhortation to ChryCo employees to “stick to the course we have set for ourselves for a return to profitability.”  

No one beyond Cerberus founder Steven Feinberg’s inner circle of executives and bankers knows the exact truth about Chrysler’s financials. In the absence of solid information from Auburn Hills about the automaker’s financial health, speculation about Chrysler’s future, or lack thereof, is running rampant.

And why not? It's clear that there ain’t no mo’ money available to the company. The bankers have put down their ten-foot poles and run. If the well runs dry, that’s it, the gig is up. 

Lenders to Chrysler’s suppliers, vendors and dealers are getting nervous. Extended payment terms, selective invoice discounts, and for some, delayed payments, exacerbate the tension. We’re told that there’s $7b in the kitty. But every dollar is precious. Prudent cash flow management or an internal scramble to manage the cash drawer to keep it from emptying? This could be the prelude to the “run on the bank” scenario RF mooted for GM back in Delphi’s dark days.

The dominoes will start to fall if and when a lender to a Chrysler supplier decides it doesn’t want to continue providing financing. Credit gets cut off. Facing extinction, the supplier puts Chrysler on a “payment on delivery basis.” The fire spreads. Every supplier insists on cash on delivery. Word gets out. Dealers stop ordering vehicles. Chrysler runs short of cash. Game over. 

To forestall foreclosure, Cerberus needs to publish Chrysler’s financials (including the financial arm). If the automaker’s doing better than we think, that’s great. We’d like to share in the brilliance of the turnaround. Chrysler’s camp followers will support Nardelli’s public proclamations. Dealers and suppliers will have more confidence in the company and the stewardship by Cerberus.

If the dark clouds of bankruptcy are hovering over Auburn Hills, well Ford and GM aren’t doing so great either. At least it’s out there for everyone to see. But Chrysler’s continuing drumbeat of plant shutdowns, employee layoffs, sales declines and now a cut-off of leasing just leads to speculation, none of it good. The question remains: how much of it is right?

The breakup of Chrysler has begun. It’s been done quietly, in the open, but under obnubilating nomenclature. That last phrase says it all. Why lie when you can make the truth so damn confusing? While Cerberus denies imminent sell-off, a cadre of automotive executives has Chrysler on a hook, passing around a felt tip pen. In fact, a pre-break up party is the only way of explaining some of the crazy-ass deals the three-headed dog has been fetching lately.

To wit: April 15. Chrysler and Nissan agree to build big vehicles for each other. Nissan will make a small, fuel-efficient car for Chrysler, shoring-up a hole they created by letting the once successful Neon whither and die. This makes sense, kind of, for the dog.  Chrysler has no small car in a blooming small car market. 

Nissan, on the other paw, generates a new competitor for itself. The Versa and Sentra are performing well in the new $4.25 a gallon US. But not as well as Honda’s Fit or Civic, or Toyota’s Corolla.  So let’s see… if you are in third place, what’s the best thing to do? Take a lesson from the leaders and refine your product? Or, take a lesson from the guys running in the opposite direction and badge engineer your current cars into vapor?

And that’s just half the deal. Chrysler’s going to build a new full-size truck for Nissan. Who the what now?  Chrysler’s truck business fell 48.1 percent in June. It’s off 30.4 percent for the year, and last year wasn’t that great. Nissan wants a piece of that? Doesn’t Nissan already have a full-size truck?  Built in Canton, Mississippi? Yeah, let’s ditch that for a Ram knock-off from Saltillo, Mexico. 

Again, let Toyota keep working their platform till they get it right. It’s foolish when you can just go buy a bunch of Dodges. That’s supposing that you need a full-size truck on your lots in the first place, which is debatable when you’ve made it from 1914 to 2004 without one.

Exactly how much of Renault – Nissan’s resurgence can be attributed to CEO Carlos Ghosn’s brilliance is always up for discussion. It’s tough to find someone who says he’s outright stupid, though. Most reports label him smart. Ghosn says the Chrysler deal will save millions in development costs and provide more efficient use of manufacturing capacity. It’s the kind of statement that seems to make sense– until you place it in context. The American market has contracted, the dollar is down against the everything and trucks are no one’s growth potential. 

Ghosn also said he wants a third, preferably North American, leg for his stool. He played with GM two years ago, but that went the way of the Datsun. Nissan and Chrysler forged a transmission deal in 2004 and announced a Versa re-badge for South America back in January. He’s been trying to form a backroom mega manufacturer for years. Ghosn doesn’t want trucks. He wants inroads.

Nissan is not the only “strategic partnership” with a knife and fork, waiting until everyone is seated. Chrysler builds the Routan for Volkswagen (a match made in purgatory.) They buy hybrid systems from General Motors to disguise Durangos and Aspens as modern vehicles. Chrysler has some kind of deal with Chery Motors, though its importance outside of China is unclear. They’ve also had talks with Mahindra & Mahindra. (Although who hasn’t, really.)

Chrysler has lost billions of dollars for its canine overlords, none of who got into the car business to make cars. They want to make money. Exactly how long they are going to wait for a profit is an X in the equation. Anyone looking at current sales figures and all the new product Chrysler’s not preparing can tell you positive cash flow is years away. As opposed to slicing off branches, divisions and units, which can serve-up cash tomorrow.

It is easier to sell to people with whom you are already doing business. If your plant is tooled-up to build Nissan Titans, why not become a Nissan Titan plant? Getting a hold of 3,700 Chrysler dealers across the heartland of America is, conceivably, a good idea for someone who needs a U.S. presence. OK, maybe not all of the Chrysler, Dodge and Jeep shops. But about 1400 stores might look tasty. 

VW wants to increase North American sales by a billion percent. In this economy, if you want to sell cars in the States, you better build them in the states. Yes, VeeDub’s looking to cut a deal down south. Meanwhile, anyone got a Sebring plant they’re not using?

Cerberus can tout all the synergistic original equipment manufacturing global positioning alliances it wants. The lines will have been drawn. Dotted lines. As in, cut here. 

(The following email was sent to Chrysler employees today. It was released to the media with a note which read "'This information should help you cover Chrysler. We also sent it to our employees to help them as ambassadors of the company – Nancy." We leave it to you, our Best and Brightest, to make what you will of it.) 

Keeping Track of the Facts on Chrysler LLC
By Nancy Rae
Senior Vice President, Human Resources and Corporate Communications

As the industry goes through a period of great change and a slowing economy, we all face difficult questions about the status of the industry and our company.  Following are a number of the leading subjects that come up in the media and in our daily conversations, as well as information you need to know and share:

The State of the U.S. Auto Industry in 2008 .

Our full year plan for the market in 2008 has been aggressively conservative, allowing us to be better positioned for the current slowdown.  We are clearly in a challenging environment, but continue to be focused on building a profitable enterprise for the long term. We are committed to good business practices despite the market slowdown such as reducing fleet sales (volume down more than 20% YTD) and dealer inventory (volume is down 67,000 units from a year ago).

The State of Chrysler
. As a private company, we are like a $60 billion startup with a real owner-operator mentality. 
. Despite the challenges, we are meeting or exceeding our financial targets.
. According to Bob Nardelli (in The Wall Street Journal), "Cerberus nor its backers are second-guessing the deal. They are not looking back." 
. According to Tim Price, Cerberus spokesman, "We are comfortable.  We are long-term investors.  Chrysler is ahead of its cash flow forecast by $1 billion."
. We currently have our top 300 leaders going through a comprehensive leadership development program consisting of five segments focusing on strategic thinking, operating excellence and leadership.
. We are developing project-specific alliances to help bring the world's best technology to our customers, as soon as possible. Examples range from working with Nissan on a new small car for global markets to partnering with GM, Daimler and BMW on hybrid technology.
. We enacted a 5 percent cost reduction on certain non-production materials and services as a part of ongoing efforts to reduce our cost footprint in a highly competitive marketplace.

Chrysler's Sales in 2008
. Worldwide sales are down 14% YTD, which includes YTD increases in Canada, Mexico and International Markets. Fleet sales in the U.S. were down 40% in May and 23% for the year.
. Sales are rising for new products, such as Dodge Journey (2nd best selling mid-size crossover in May), Dodge Avenger (+15% YTD), Dodge Caliber (+9% YTD), Chrysler Sebring Sedan/Convertible (+11% YTD), and Jeep Patriot/Compass (+65% YTD).
. Our long-wheelbase minivans' U.S. retail sales are up 30% YTD, and retail share is up.
. In Canada, Chrysler is the #2 best selling manufacturer in the country, and up 5.5% YTD.
. In Mexico, Chrysler's sales are up 5.1% YTD.
. Outside North America, Chrysler's international sales are up 8% YTD, with markets like China and Russia becoming a larger part of our business.
. Dealers have embraced Project Genesis, and we are making progress in transforming the U.S. dealer network. Through May, 58% of our dealers are tri-branded, compared to 50% a year ago.  In the U.S., we now have 3,488 dealers, down from a year ago 3,684.

Chrysler's Alignment with Marketplace
. Chrysler is better aligned than previously for the shift towards smaller, more fuel efficient vehicles.  We also believe there is a strong and viable pickup truck market going forward.
. Through May, our U.S. sales were 41% pickup trucks and traditional SUVs, and 59% cars, car-based crossovers, compact vehicles and minivans.  (Industry is at 33%/67% ratio)
. Chrysler has six vehicles that achieve 28 MPG on the highway: Dodge Caliber, Dodge Avenger, Chrysler Sebring, Chrysler Sebring Convertible, Jeep Patriot and Jeep Compass.

Chrysler's Launch Lineup for 2008
These new vehicles have competitive advantages and are well-suited for today's marketplace:
. Dodge Journey – A crossover with class-leading (25 mpg) with a 4-cylinder engine.
. Chrysler Aspen/Dodge Durango Hybrids – Full-size SUVs offering up to 40% improved fuel economy in the city at a price thousands of dollars less than the competition.
. 2009 Dodge Ram – There is no better way to fight truck buyer malaise than with our best truck lineup ever boasting breakthrough new features. The new Dodge Ram lineup will also soon add optional light duty diesel and hybrid powertrain options.
. Dodge Challenger – This modern muscle car will come with a fuel-efficient V6 option at an aggressive entry-level price of $21,995.

Harbour Report for Manufacturing Productivity
. This year, Chrysler tied Toyota for #1 in manufacturing productivity (avg assembly hours).
. Chrysler has the #1 assembly plant (innovative Toledo Supplier Park) and #1 engine plant (GEMA joint venture with Hyundai and Mitsubishi).
. The combination of lower hours-per-vehicle production and a more competitive wage rate helps us compete with the transplants.

Quality
. In the latest J.D. Power IQS, the company improved six points, and Chrysler and Dodge brands showed improvement.  Unfortunately, the Jeep brand was last in the survey due to concerns about the Wrangler Unlimited.  We can do better and we know it.
. Dodge Durango and Dodge Dakota were tops in segments for least problems per hundred. Chrysler PT Cruiser took second place in the "Compact Multi-Activity Vehicle Segment".
. We have a corporate wide focus on the customer.  As part of this, we have put in place the industry's first Chief Customer Office, Doug Betts, and the Customer Advisory Board. 
. Chrysler LLC has approved more than 400 improvements in areas such as better materials, fit and finish and quieter operation.

Commodity Prices
. In the wake of mounting pressure from ever-increasing steel and other commodity prices, Chrysler is managing its costs and revenues to partially offset spiraling commodity costs.  
. Chrysler will continue its overall commitment to deliver the best values in the business through increasing standard equipment with our New Day packages to creative incentives, such as the $2.99 Gas Guarantee and our industry-leading lifetime powertrain warranty.
. At the beginning of the model year, Chrysler added, on average, $1,200 of new content to the vehicles in its lineup.

Investing in our Future with Advanced Technology
. Chrysler is in the midst of a $3 billion investment in advanced powertrains to develop new fuel efficient engines, axles and transmissions.
. ENVI is Chrysler's in-house organization charged with establishing Chrysler leadership in electric-drive vehicles and related advanced-propulsion technologies.
. Chrysler's UConnect® is a Bluetooth® enabled voice-activated, in-vehicle, hands-free communications system that recognizes more than 100,000 words and is capable of learning new words. Voice commands can input addresses to the navigation system, select satellite radio stations and access voice mail. New for 2009, the hands-free system automatically downloads up to 1,000 phone book entries per phone.

. Examples of new advanced technologies available on 2009 models include:
. In-vehicle wireless Internet connectivity: coming from Mopar® by year end 2008.
. Rear Cross Path: Chrysler-exclusive system warns drivers of approaching traffic in the parking lot aisle during back-up maneuvers.
. Blind Spot Monitoring: exclusive to Chrysler and Dodge in minivan segment.

We are committed to continuing to share information with you.  As an ambassador for this company, we hope you will communicate this information in your conversations about Chrysler.

Nancy

Back when Cerberus bought Chrysler from Daimler, the new owner’s spinmeisters were highly animated. “We’re quicker than quick,” they proclaimed. “Our private equity owners don’t answer to The Street. We can make decisions– and get things done– fast.” The party line was designed to counter fears that Cerberus had bought-in simply strip-and-flip Chrysler. Uh-uh. They were going to restructure the ailing American automaker. Right now. And then… nothing. As Billy Preston said, nothing from nothing leaves nothing. 

There’s plenty of mystery and inconsistency surrounding Chrysler’s short-term future. Several suppliers tell us ChryCo’s changed payment terms from 45 to 60 days, and unilaterally lopped-off five percent from their bills. We know of one supplier that’s owed millions, that hasn’t been paid in months. This indicates a severe and entirely predictable cash crunch for a company whose CEO admitted (just four months after Cerberus’ purchase) that his employer was “operationally bankrupt.” 

But Chrysler’s paying other vendors the full amount owed, on time. And one of our Best and Brightest reports that Chrysler’s upped its seat orders for minivans, Dakotas, Journeys and some Jeeps.  At the same time, we hear rumors that Chrysler will file for Chapter 11 by August, to maintain the option of suing Daimler for selling them a bill of goods. And yet Chrysler’s trotting-out octogenarian legend Lee Iaccoca to rally the troops. Why bother with the warm fuzzies if the pink slips are at the printers?

But it’s what Chrysler HASN’T done that’s the real news. Two months after Jim Press left the top of Toyota to join the over-moneyed executives in Auburn Hills, the nets were all abuzz with model termination. Sure enough, Chrysler Pacifica, Crossfire, convertible PT Cruiser and Dodge Magnum were lopped off the dealer menu. Chrysler signaled that there was carnage more to come. Only… there wasn’t. Despite journalists’ helpful lists of DOA-mobiles– Jeep Commander, Dodge Durango, Jeep Compass, Dodge Nitro and so on– the models are still in production.

That’s as far as anyone knows. Sales of these vehicles are so far down the rat hole (e.g. Durango sales down 68.8 percent in May), their inventories are so large (e.g. there’s a 117-day supply of Jeep Commanders), that Chrysler could stop building them without much impact on, well, anything. With GM closing four truck plants and Ford slicing production as fast as it can, you’ve got to wonder why Chrysler– the “quick one”– doesn’t cut bait and fish. Where’s their “cut your way to prosperity” turnaround plan?

Chrysler can’t afford it. Lest we forget, GM and Ford are paying mega-billions to buyout their excess union workers. ChryCo’s private equity owners have deep pockets, but any large-scale effort to downsize their automotive holding would force them to borrow big bucks, miring Cerberus even deeper into their Chrysler quagmire. Clearly, sensibly, they don’t want to go there.

Besides, the REAL game is strip-and-flip. (Always has been.) Why commission wholesale structural changes when you’re going to break up the parts and sell them off? A lick of paint for curb appeal (i.e. a hybrid or something) and Bob’s your uncle. Alternatively, if Cerberus’ longer-term dreams of The Mother of All strip-and-flips have become a cash conflagrating nightmare, Chapter 11 protections will give Chrysler’s eventual owners the freedom to kill models, shutter factories and “modify” union contracts. Call it the “screw this, we’ll unload this thing as a fixer-upper” strategy.

Again, the signs coming from Chrysler are not clear on ANY of these points. Why would they be? Cerberus didn’t get to a size where it could afford to buy Chrysler (at a whacking great discount) by telegraphing their every move to the press or, for that matter, their own employees. We’ll just have to watch the signs– Company-wide summer break? ResCap going under?– to see if and when Cerberus says draws a line under this misguided misadventure.

In that sense, the real question here is whether or not Cerberus is at the point where they’d rather take a hit to their reputation than a hit to their finances. This makes Chrysler’s immediate future a contest between expediency (i.e. greed) and ego (i.e. hubris). While I don’t think that the fact that Chrysler is purposely mistreating some of its suppliers indicates that the company is preparing to pin the blame on the donkey, as some of our commentators have suggested, it does tell us that the end game is near.

There's no question in my mind that Chrysler is headed for dissolution. If Cerberus was going to “save” Chrysler they would be doing something, anything to that end. Never mind all the announcements about foreign partnerships. Black Tuesday has revealed that the time to act is now. (Well, three years ago.) Chrysler’s silence speaks volumes. It tells us the once-proud automaker’s final chapter is about to be written.

It’s getting close to the first anniversary of Chrysler going to the dog. While there’ve been job cuts and “market adjustments,” the shoes are still hanging. Chrysler is still a long way from being profitable. But it appears to be an equally long way from breakup. What exactly is planned? The truth may be that Cerberus isn't “planning” so much as “waiting.”

For Cerberus, buying Chrysler was a gamble. As you’d expect from New York money men, they did several things to “stack the deck.” First, they got the company for a song (under seven and a half billion) with some working capital included. More importantly, they took the automaker private. With no shareholders to whine about dividends, no “captain Kirks” to try to swing a takeover, Cerberus can afford to take the long view. And the long view says… go public. Or strip and flip. Either way, now’s not the time.

Cerberus’ holding pattern has less to do with ChryCo’s declining fortunes than OTHER carmakers’ declining fortunes. In other words, you can’t flip a company without a flipee. The current U.S. automotive market leaves very few players flush with cash, looking for an American dance partner. And those that are, aren’t. Splitting-up Chrysler’s assets is the only realistic alternative, and that idea poses involves many of the same issues.

At the moment, Jeep is only spinnable hunk of Chrysler. (No surprise there; Jeep’s had more “partners” than the widow next door.) Jeep is the only part of Cerberus’ entire car making operations with a positive cash-flow. While the profits aren’t enormous, the brand’s “trail-ratings” carry enough cachet to allow big mark-ups on simple vehicles. 

There are several problems with Cerberus selling Jeep sooner rather than later. First, while Jeep’s hard-core fan base is less (more?) affected by fashion than most, SUVs are not the flavor of the month. The new U.S. federal corporate average fuel economy (CAFE) regulations are in flux, awaiting clarification and California-compliance (or not). In any case, whatever Cerberus could get for Jeep now pales is comparison to what Jeep would be worth in a hot, relatively settled market. 

Next and again, who’d buy Jeep? With credit in short supply, a US-market outsider would have trouble stumping-up the dough to snag it. And those foreign firms that could afford Jeep (BMW, Toyota, Honda, etc.) either already have off-road products or don’t want them. VW is busy. Daimler is sitting in the corner, grinning.

Renault/Nissan is the only like foreign suitor— only they aren’t. Carlos Ghosn may make noises about mergers, but there ARE limits. And lest we forget, NONE of the imports are brave/stupid enough to buy a unionized company, bringing the (free!) Trojan horse through the gates. Domestically, Ford just sold Land Rover. And although GM has decades of experience cannibalizing itself, even RenCen knows it doesn’t need Hummer AND Jeep.

Besides, what would Cerberus do with the rest of the company after they stripped-out the only part anyone wants? China is often named as a potential buyer, but even for pennies on the dollar for U.S. production capacity and access to thousands of dealers, they’d see Chrysler as the financial sinkhole that it is.

No matter how much— or more likely little— Cerberus made from a larger Chrysler breakup, it could be the volte face that launches a thousand lawsuits. Shuttering Oldsmobile cost GM billions; the General’s terminal brand wasn’t a fraction the size of Chrysler, Dodge or Jeep (never mind the three brands combined). Filing for bankruptcy and THEN selling off the bits would mitigate Cerberus’ legal risk, but it’s hardly a profitable exit strategy. If nothing else, Chapter 11 would decimate the brands’ street value.

As I stated at the beginning, any fool knows that Chrysler is a long, long way from profitability. But who said anything about profitability (other than me)? Cerberus doesn’t have to “build equity;” they don’t have to justify their decisions to institutional shareholders. Think of Chrysler as a slum landlord who bought a building on the cheap awaiting a buyout offer and you begin to get the picture.

Watch as Chrysler reins-in R&D while “consolidating” dealers (i.e. watching them die). This viewpoint explains “quicker than quick” Chrysler’s strange reluctance to cut vehicle lines that everybody (but their few remaining buyers) know are dead in the water. The superabundance of product forces dealers to go tits up, and leave their proverbial apartments.

Remember: Cerberus is in this to make money, not to “save Chrysler.” They need to get their $8b back, plus a little extra (Daimler holds 19.9 percent). To do that, all they have to do is run the business into the ground. When the time comes to “sell Jeep, liquidate the rest,” Chrysler’s corporate coffers will be conveniently bare (or pretty close). The lawyers can fight over the bones. And the “dog” will have had its day.

“It’s a New Day.” Unless you’re terminally ill or the guest of a terrorist cell, this observation won’t come as much of a surprise or, in itself, cause much delight. And yet that’s the tagline for the [now] combined Chrysler, Dodge and Jeep brands. In an explanatory TV ad, an animated child tells viewers that the American automaker will [now] listen to YOU and build cars the cars YOU want. The ad is an excellent example of what Adolph Hitler called The Big Lie: a falsehood so “colossal” that no one would believe that someone “could have the impudence to distort the truth so infamously”. To wit: if any single automaker ISN’T building the cars YOU want, it’s Chrysler.

Ipso facto. Chrysler’s U.S. market share is swirling around the toilet bowl. Although they’re now a privately-held company exempt from full public financial disclosure, analysts reckon Auburn Hills accounts for just 14 percent of the America’s new car sales pie– and falling. Not to mention the bulk sales propping-up that share. And no wonder: Chrysler’s three brands are suffused with poorly-built, hugely discounted, high-depreciation product that YOU would be crazy to buy.

The timing of Chrysler’s new day new tagline adds to the cognitive dissonance. Why would Chrysler announce its newfound desire to build cars customers want (sounds crazy but it just might work) just as it’s about to decimate its entire model lineup? This forthcoming execution of ten or more Chrysler losers makes perfect sense: the first part of making the cars YOU want is shit-canning the cars YOU don’t want. But it’s a PR nightmare. Customers will [rightly] see the bloodletting as an abject admission that Chrysler isn’t clued-in to its customers’ need.

Don’t worry! It’s a New Day! (How Mein Kampf is that?) Yes, well, what about all those customers who helped keep Chrysler alive by buying all the models that the company is now killing? Unless these owners plan to take their lame duck car or truck to the grave (via their very own personal lifetime warranty), Chrysler’s producticide will add depreciation insult to depreciation injury. Should old acquaintance be forgot, and never brought to mind? Guess so.

The discrepancy between Chrysler’s New Day sloganeering and its past and current predicament isn’t the only reason that their new tagline is a Big Lie. The automaker’s inability to implement this consumer-centric philosophy in the future also puts paid to their Napoleonic declaration that history begins… now.

Let’s set aside the fact that Chrysler’s new owners’ intention to sell the company to someone else (talk about commitment: we’re going to build the cars YOU want until we can get SOMEONE ELSE TO DO IT). To bring meaning to Chrysler’s New Day promise to listen and respond to customers’ needs, they’ve got to change they way they do business.

Hence the tagline’s tagline: “you talk, we listen.” The evidence for this communications revolution is weak. The official website proclaims the New Day and invites customers to “see the difference” on 12 models. The majority of the enhancements are options (i.e. extra expense), rather than new “you asked for it, you got it” standard features. Are we really to believe that Charger customers clamored for “Cool Vanilla” paint? At best, these changes result from the same old focus group filtration. At worst, Chrysler’s spinning to create a false sense of consumer “empowerment.”

For evidence of Chrysler’s supposed desire to “get close to the customer,” we turn to their official blog. Not only is Chrysler leaving this electronic forum to rot on the [not Jason] vine, but even a cursory glance reveals that it’s nothing more than corporate propaganda written by insiders, hacks and Spinmeisters. “Yes a truck can be a family vehicle;” “A new day dawns at our dealerships;” “Unleashed.” In a web swimming with millions of car buyers and enthusiasts, most blog posts get single digit (including 0) responses. ‘Nuff said?

It’s too bad that Chrysler’s New Day is a Big Lie. They’ve missed a huge opportunity to make an enormous competitive leap. If Chrysler really wanted to revolutionize its business, to create a genuine new dawn, they could do so by throwing open the company to its customers, dealers and workers. They could use the net to destroy the walls separating “us” and “them,” and establish a sophisticated feedback loop where the company COULD listen to its customers— and act upon that information in a timely way.

Yeah right. Chrysler is owned by Cerberus, a private equity company known for its obsessive, Kremlin-like secrecy. Of all the automakers in the world, Chrysler is the LEAST likely to let its guard down. There will be no Glasnost in Auburn Hills. Chrysler’s New Day is nothing more than a false dawn for those gullible– or desperate– enough to believe that the sun will come out tomorrow for the product-challenged, financially troubled American automaker.