Chrysler Death Watch?

On April 3, 2005, this website began the General Motors Death Watch. Few industry or media types credited the possibility that the world’s largest automaker could be on the ropes. By this August, when the Ford Death Watch series began, it was clear to all and sundry that GM is in a fight for its life. And, of course, that Ford was in the same position. That left Chrysler as the sole domestic automaker whose fortunes weren’t in deep decline. And then, two weeks ago, Chrysler announced that it will lose $1.52b in the third financial quarter. Does that mean its time for a Chrysler Death Watch? First, a little history…

After staring down the barrel of bankruptcy in 1979/1980, Chrysler tapped into Uncle Sam’s wallet to make a remarkable recovery. The automaker tossed its moribund product line and milked their new K-car like a prize cow. At the same time, they sought out niches other companies had ignored. The Voyager minivan was a smash hit, and the company’s convertibles revived a dead genre. The ‘93 Ram pickup was another major score. In ’98, Daimler-Benz completed its takeover “merger of equals." With a transfusion of German money, management and engineering, Chrysler’s future looked brighter than ever. The ensuing 300, Magnum and Charger found plenty of willing buyers. Once again “Hemi” was on the lips of power-hungry pistonheads both young and old.

But past lessons– both good and bad– were forgotten. Despite the badge engineered departure of their Plymouth and Desoto brands, Chrysler is once again diluting its appeal by selling cheap imitations of its own products. After building reasonably distinctive, commercially successful vehicles from the same platform (300, Charger, Magnum), Chrysler is trying to pass off a tarted-up Durango as an Aspen (a name that brings it no honor) and a hideous Caliber clone as a Jeep. The former will find no friends and the latter degrades a venerable brand. The money spent on both “new” models could have paid for a much-needed refresh of the august PT Cruiser, or other aging products.

When gas prices skyrocketed, sales of Chrysler’s gas guzzlers tanked like everyone else’s. But instead of curtailing production of the slower-selling models, Chrysler continued pushing them off the assembly line. According to PR flack Jason Vines, the automaker’s dealer network is currently sitting on 600k unsold units. At the start of this month, DCX dealers are holding 36,500 unsold Chrysler 300s. At the current rate of sales, that’s an 84-day supply, when 60 days is considered a healthy “pad.” The inventory situation is so bad in general that dealers are refusing delivery of ‘07’s, further choking Chrysler’s chicken.

It is, in fact, a scandal. Peter DeLorenzo over at Autoextremist.com recently quoted a Chrysler “insider” who reported that “upper management has been building cars without dealer orders for close to two years in order to keep the factories open and the truth of their financial situation hidden… DCX 'sells' the unassigned units to their business centers and books the profit from these sales when necessary to prop-up quarterly profits.” On Monday, Automotive News reported that the company paid dealers as much as $750 per unit to take extra stock after its supply of unsold inventory reached 92 days.

Group CEO Tom LaSorda now says that the company will cut both internal costs and production. To that end, Chrysler recently asked the United Auto Workers to match the health care “concessions” given to GM. The union’s refusal doesn’t bode well– which could change once Chrysler starts shuttering factories and offering buyouts a la The Big Two. One wonders how Chrysler’s plan to import Chinese-made economy cars will affect that equation. Meanwhile, Chrysler has matched the Big Two’s zero percent financing to anyone who can make it through the dealer’s door, and added incentives on slow-selling pickups and SUVs, including some 2007 models.

DCX Chairman Dieter Zetsche has been curiously silent through the recent PR storm. The last time we heard from dear Dieter, he accused the UAW of being “irrational” in their resistance to healthcare concessions. Market analysts have been a bit more vocal, though. Jochen Gehrke of Deutsche Bank AG states DCX should sell Chrysler Group, which he says will “unlock” the value of Daimler’s stock.

Even with the $1.5b hit, DCX is in relatively good financial shape. But just like their cross-town rivals, no company can survive that kind of fiscal hemorrhage forever. In fact, it’s now clear that the business basics dragging down GM and Ford– a lack of investment in established products, the introduction of lackluster vehicles, the union strait jacket, burdensome health care and pension costs, dishonest or oblivious management, top heavy bureaucracy, a bloated dealer network– are also hobbling Chrysler. Perhaps it's time to combine all three automakers into a Detroit Death Watch.