Chrysler Suicide Watch 1: Jump?

Frank Williams
by Frank Williams
chrysler suicide watch 1 jump

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?

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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.

  • Jeff S Corey--We know but we still want to give our support to you and let TTAC know that your articles are excellent and better than what the typical articles are.
  • Jeff S A sport utility vehicle or SUV is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive.There is no commonly agreed-upon definition of an SUV and usage of the term varies between countries. Thus, it is "a loose term that traditionally covers a broad range of vehicles with four-wheel drive." Some definitions claim that an SUV must be built on a light truck chassis; however, broader definitions consider any vehicle with off-road design features to be an SUV. A [url=https://en.wikipedia.org/wiki/Crossover_(automobile)]crossover SUV[/url] is often defined as an SUV built with a unibody construction (as with passenger cars), however, the designations are increasingly blurred because of the capabilities of the vehicles, the labelling by marketers, and electrification of new models.The predecessors to SUVs date back to military and low-volume models from the late 1930s, and the four-wheel drive station wagons and carryalls that began to be introduced in 1949. The 1984 [url=https://en.wikipedia.org/wiki/Jeep_Cherokee_(XJ)]Jeep Cherokee (XJ)[/url] is considered to be the first SUV in the modern style. Some SUVs produced today use unibody construction; however, in the past, more SUVs used body-on-frame construction. During the late 1990s and early 2000s, the popularity of SUVs greatly increased, often at the expense of the popularity of large [url=https://en.wikipedia.org/wiki/Sedan_(automobile)]sedans[/url] and station wagons.More recently, smaller SUVs, mid-size, and crossovers have become increasingly popular. SUVs are currently the world's largest automotive segment and accounted for 45.9% of the world's passenger car market in 2021. SUVs have been criticized for a variety of environmental and safety-related reasons. They generally have poorer fuel efficiency and require more resources to manufacture than smaller vehicles, contributing more to climate change and environmental degradation. Between 2010 and 2018 SUVs were the second largest contributor to the global increase in carbon emissions worldwide. Their higher center of gravity increases their risk of rollovers. Their larger mass increases their stopping distance, reduces visibility, and increases damage to other road users in collisions. Their higher front-end profile makes them at least twice as likely to kill pedestrians they hit. Additionally, the psychological sense of security they provide influences drivers to drive less cautiously. https://en.wikipedia.org/wiki/Sport_utility_vehicleWith the above definition of SUV any vehicle that is not a pickup truck if it is enclosed, doesn't have a trunk, and is jacked up with bigger tires. If the green activists adhere to this definition of what an SUV is there will be millions of vehicles with flat tires which include HRVs, Rav4s, CRVs, Ford Escapes, Buick Encores, and many of compact and subcompact vehicles. The green movement is going to have to recruit millions of new followers and will be busy flattening millions of tires in the US and across the globe. Might be easier to protest.
  • Sckid213 I actually do agree that most Nissans are ultimately junk. (I also think many BMWs are also). I was talking challenging the 3 in terms of driving dynamics. Agree all were failures in sales.
  • THX1136 More accurately said, we are seeing exponential growth in the manufacturing capabilities in this market. Unless, of course, all those vehicles are sold with customers waiting until more a produced so they can buy. Indeed, there are certainly more EVs being purchased now than back in 2016. Is demand outstripping manufacturing? Maybe or maybe not. I sincerely don't know which is why I ask.
  • ToolGuy The page here (linked in the writeup) is ridiculously stupid https://www.tyreextinguishers.com/how-to-spot-an-suvLike, seriously stupid, e.g., A) Not sure that particular Volvo is killing the planet as quickly as some other vehicles we might choose. B) A Juke is "huge"??? C) The last picture shows a RAV4 Hybrid?
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