Chrysler Suicide Watch 1: Jump?

Frank Williams
by Frank Williams

Just a few years ago, Walter Chrysler’s namesake was riding high. The “partnership of equals” between America’s Chrysler Corporation and Germany’s Daimler-Benz bore fruit in the form of the critically acclaimed Chrysler 300 and Dodge Magnum. “Hemi” was the performance buzzword. “SRT” indicated the performance deal of the decade. Fast forward to ’06 and everything Chrysler’s doing seems strangely, willfully, specifically designed to push the automaker to the brink of self-annihilation.

Post-Katrina, when the market for pickups and SUV’s tanked, Chrysler’s management kept the production lines humming. As of early November, the North Jefferson Assembly Plant in Detroit (Grand Cherokees and Commanders) and the Windsor Assembly plant in Ontario (Pacificas, Grand Caravans and Town & Countries) were both working overtime shifts, producing more and more moribund vehicles. The result has been as frightening as it is predictable: excess inventory on an epic scale. We’re talking 500k unsold vehicles.

The ungainly Jeep Commander sits on dealer lots for 157 days before selling. The gainly Jeep Grand Cherokee remains welded to dealer pavement for 120 days. The answer to a question no one asked, the Chrysler Pacifica, stays put for 142 days. The once mighty Dodge and Chrysler minivans hang around 133 and 117 days respectively. In total, excluding fleet sales, Chrysler has 126 days of unsold inventory (compared to Toyota’s 30). And still the production lines keep flowing.

What’s worse, this super-abundance of slow-selling models joins a glut of last year’s models. Roughly 45 percent of the vehicles at Chrysler and Dodge stores are ’06 models. In comparison, ‘06’s make up less than 20 percent of GM’s and about 25 percent of Ford’s current inventories. But wait! This figure doesn’t include all the cars and trucks in DCX’ increasingly-infamous “order bank”: a repository of vehicles that dealers won’t/can’t accept, which drains DCX of hundreds of thousands of dollars a day in storage costs.

And the hits keep not happening. The majority of the machines in Chrysler’s sales banks are base-level vehicles without the equipment most buyers seek. In the words of the dealers, Chrysler is giving them “weirdly packaged minivans” and trucks spec’d-up with “every mismatched combination and permutation of features” they can make.

No wonder Chrysler is resorting to bribery to try and move the metal. They’re offering dealers $200 for every 2007 model they take above their normal allocation, and $400 for every 2006 model they accept from the sales bank. No sale; the payments don’t even cover dealers’ interest payments on the increased inventory. Chrysler Group is also attempting to bribe existing and potential customers with $1k coupons mailed to 3.4m consumers. Will a one percent response rate even cover the postage? Watch this space.

The payment may help ameliorate the negative effects of the company’s financing deals. Customers can now lease a fully-equipped ’07 van or truck for just a few dollars a month more than the lower-line ‘06 models. For another, they’re using bully-boy tactics to cram unsold cars down dealers’ throats. A $3m lawsuit in NY federal court claims Chrysler tried to force one of its larger dealerships to stock cars it never ordered, and then gave competing dealers unfair price breaks.

The situation is so horrific that industry and financial analysts are calling for DaimlerChrysler to divest itself of the Chrysler Group– before the American automaker destroys its German host. Despite Dr. Z’s repeated declarations that Chrysler is not for sale, several important investors agree: DCX should dump Chrysler as soon as humanly possible. OK, but— several analysts put the Chrysler Group’s worth at “zero or less.” In the words of one investment banker, “No one would buy it… perhaps the Chinese would take it if they didn’t have to pay anything for it.”

Moody’s Investors Service has already downgraded DCX’ debt rating once and may do so again. “We would certainly consider a different rating… if Chrysler were no longer in the group.” JP Morgan remains convinced that management patience towards Chrysler has “worn thin and increases the likelihood that DCX will reduce exposure to Chrysler.” It’s the investment community’s equivalent of yelling “jump!” to someone standing on a ledge.

Clearly, Chrysler needs to reduce production until dealer inventories return to manageable levels, and rethink their whole product portfolio. At the same time, the UAW must agree to some contract concessions. If Chrysler can’t cut costs and quickly make production changes– including temporarily shutting down entire assembly lines– they’ll keep driving the company and their union workers into inventory bloated oblivion. Despite recent “cut and run to China” moves, Chrysler’s long-term survival ultimately depends on unpicking this Gordian knot.

Of course, leaving this difficult endeavor to DCX’ current executive team may not be a wise move; the entire situation reeks of mismanagement at the highest possible levels. Heads must roll (we’re looking at you sales chief Joe Eberhardt), or nothing will change. Meanwhile, Chrysler’s woes raise a troubling question: if DCX can’t turn this ship around, what effect would bankruptcy have on the rest of Detroit’s home team?

Frank Williams
Frank Williams

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  • Commando1 Commando1 on Jul 13, 2009
    "Clearly, Chrysler needs to reduce production until dealer inventories return to manageable levels, and rethink their whole product portfolio. At the same time, the UAW must agree to some contract concessions. If Chrysler can’t cut costs and quickly make production changes– including temporarily shutting down entire assembly lines– they’ll keep driving the company and their union workers into inventory bloated oblivion. Despite recent “cut and run to China” moves, Chrysler’s long-term survival ultimately depends on unpicking this" I want your crystal ball so I can pick tomorrow's lottery number.
  • Superbadd75 Superbadd75 on Jul 20, 2009

    It's rather creepy, looking back out how the whole Chrysler thing has played out since this was written in December '06. It's no wonder it's on the front page as a top article. I wish I had been along with TTAC for the ride on both GM and Chrysler's death watches, as it's very interesting to see how it all came down.

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  • Varezhka And why exactly was it that Tesla decided not to coat their stainless steel bodies, again? My old steel capped Volant skis still looks clean without a rust in sight thanks to that metal vapor coating. It's not exactly a new technology.
  • GIJOOOE “Sounds” about as exciting as driving a golf cart, fake gear shifts or not. I truly hope that Dodge and the other big American car makers pull their heads out of the electric clouds and continue to offer performance cars with big horsepower internal combustion engines that require some form of multi gear transmissions and high octane fuel, even if they have to make them in relatively small quantities and market them specifically to gearheads like me. I will resist the ev future for as long as I have breath in my lungs and an excellent credit score/big bank account. People like me, who have loved fast cars for as long as I can remember, need a car that has an engine that sounds properly pissed off when I hit the gas pedal and accelerate through the gears.
  • Kcflyer libs have been subsidizing college for decades. The predictable result is soaring cost of college and dramatic increases in useless degrees. Their solution? More subsidies of course. EV policy will follow the same failed logic. Because it's not like it's their money. Not saying the republicans are any better, they talk a good game but spend like drunken sailors to buy votes just like the libs. The sole function of the U.S. government is to take money from people who earn it and give it away to people who didn't.
  • CecilSaxon Sounds about as smart as VW's "SoundAktor"
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