Chrysler Suicide Watch 17: Party 'Til They Drop

Frank Williams
by Frank Williams
chrysler suicide watch 17 party til they drop

Earlier this week, the European Union rubber-stamped the DaimlerChrysler divorce. So that's it. Later this financial quarter, prefix and suffix will go their separate ways and Cerberus Capital Management will marry the battered bride. Overlooking the fact that Chryslerberus will soon be importing Chinese-built cars for their U.S. customers, the automaker plans a nationwide dealer party for the born-again "all-American company." With all that has– and hasn't– happened to Chrysler of late you have to wonder exactly what and why they're celebrating.

Other than Chrysler's liberation from spousal abuse, there's not a lot to commemorate in Auburn Hills. Despite Cerberus' deep pockets, Standard & Poor's and Moody's Investors Service have just dropped the American automaker's debt rating to "junk" status. Whether this will affect Chrysler management's ability to float loans to stay afloat remains to be seen, but it's not what you'd call a good omen.

And loans are the order of the day. Even as Chyslerberus' debt rating's tanked, Chrysler's new management's been busy looking for someone to loan them $12b for the automotive side AND $8b for Chrysler Financial. If going $20b deeper in debt isn't risky enough, the automaker is reportedly borrowing the big bucks at around 8.5 percent. The interest payments alone could keep Chrysler from profit for many years to come.

S&P analyst Gregg Lemos-Stein goes further. Lemos-Stein says if the U.S. car market remains on its current downward trajectory, Chrysler could be in default by 2010. In an interview with BusinessWeek, he said "One of our big concerns is that it doesn't take a dramatic reduction in sales to put Chrysler at risk." In plain terms, one good recession and Chrysler would join AMC and Studebaker at that big car lot in the sky.

Cerberus' top dog realizes his new acquisition's precarious position. After the House passed stringent new fuel economy rules, Stephen Feinberg made a rare personal appearance to schmooze senators into relaxing the standards. Chrysler's taskmaster's pegged the cost of meeting those standards at $7K per vehicle. The extra expense would, Feinberg argued, put Chrysler out of business.

Well, he would say that, wouldn't he? Gas-guzzling trucks and SUV's still account for some 70 percent of Chrysler's U.S. sales. And North American sales account for 92 percent of Chrysler's total turnover. Not to put too fine a point on it, the automaker is at the mercy of the U.S. economy. And, by extension, gas prices.

As American gas prices climb and large vehicle sales plummet, Chrysler has nothing in their automotive arsenal to staunch the arterial spray. Their last two "Hail Mary passes," the Sebring and Avenger, are so bad that even CEO Tom LaSorda was reportedly "quite upset" with what his employees had wrought. Chrysler's smallest cars, the ancient PT Cruiser and the only slightly more technologically advanced Caliber clones, hardly have Toyota, Honda or even Chevy scurrying for cover.

Next up: the refreshed minivan twins, out this fall. While Chrysler has been the minivan sales leader since inventing the genre, and the new models' rear facing captain's chairs are a way cool unique selling point, it's unclear whether or not the minivans can reinvigorate a moribund market. And if they don't, what profit is there being King of a shrinking kingdom?

Even Chrysler's much-ballyhooed partnership with China's Chery carmaker offers no immediate prospect of financial relief. By the time the partnership designs a car to U.S. safety and environmental specs, ramps up the supply chain and assembly line, works out any production and quality problems, passes all EPA and NHTSA tests and puts the first cars on the boat, the entire market may have shifted, leaving the Sino-American venture flatfooted.

None of this bodes well for the future of Chrysler as we know it. As we've pointed out time and time again, Cerberus is in the business of dissecting sick businesses. They rend asunder what the founders hath put together, make as much as they can from the salvageable parts, and then dump the rest.

The more time that passes before Cerberus takes control of Chrysler, the worse their immediate prospects and the higher the likelihood they'll do what they swore they would never, ever do: strip and flip.

The Detroit News estimates that once the ink is dry and the dust settles on the financial dealings, DCX will have paid $673m to get rid of Chrysler. Given the problems facing Chrysler, and the way DCX stock has gone up since they started dropping hints they were selling it, it looks like money well spent.

No matter what Cerberus does or doesn't do to/with Chrysler, the forthcoming party in Auburn Hills will be nothing compared to the celebrating that will be break out in Stuttgart.

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  • Ex-dtw Ex-dtw on Jul 09, 2007
    Chrysler has got it ALL WRONG. Their product line sucks, their advertising sucks, and their dealer network sucks. I will just reiterate what has already been said in earlier articles, "marketing, marketing marketing". I do not mean finding a new way to apply porcine lipstick. I mean figuring out what customers will pay for and building it. Classic example - crappy interiors. There are only a couple of reasons people still buy VW's and it ain't durability. Lastly, as for the "I wouldn't buy it" or "I think it is ugly", you are a sample of one. Not meaningless, but definitely ont definitive. Because if that weren't the case, Honda would be stuck with about a years worth of Civic's and CRV's. Please let the MCP know he can have his car back.

  • on Jul 09, 2007

    I've said it before, for my money, Chrysler has the worst lineup of vehicles out there. While I don't like GM's offerings as a whole, they do have one very bright star to build upon, Corvette. When was the last time you saw an add that included Chrysler's halo car, the Viper? I certainly can't remember one since D-B bought them. Sure, there aren't many people out there who are going to buy a Viper, but what's the purpose of a mass market retailer building a car like the Viper if you aren't going to use it to promote your brand? Ford used the Ford GT in it's commercials even though it was even more unattainable than a Viper. That was a car to lust after,a nd even if you couldn't afford it you went to the Ford dealer to stare and drool over one. Then the salesman would steer you towards a Mustang GT. As far as advertising, I'll cast a vote for the moronic Nitro commercials. From the car falling through the earth to the other car getting blown up when it gets a jump start from a Nitro, they assaulted and insulted my intelligence in the extreme. These commercials were enough to make me not even consider a Chrysler product.

  • 56m65711446 Well, I had a suburban auto repair shop in those days.
  • Dukeisduke Yikes - reading the recall info from NHTSA, this sounds like the Hyundai/Kia 2.4l Theta II "engine fire" recall, since it involves an engine block or oil pan "breach", so basically, throwing a rod:"Description of the Safety Risk : Engine oil and/or fuel vapor that accumulates near a sufficiently hot surface, below the combustion initiation flame speed, may ignite resulting in an under hood fire, and increasing the risk of injury. Description of the Cause :Isolated engine manufacturing issues have resulted in 2.5L HEV/PHEV engine failures involving engine block or oil pan breach. In the event of an engine block or oil pan breach, the HEV/PHEV system continues to propel the vehicle allowing the customer to continue to drive the vehicle. As the customer continues to drive after a block breach, oil and/or fuel vapor continues to be expelled and accumulates near ignition sources, primarily expected to be the exhaust system. Identification of Any Warning that can Occur :Engine failure is expected to produce loud noises (example: metal-to-metal clank) audible to the vehicle’s occupants. An engine failure will also result in a reduction in engine torque. In Owner Letters mailed to customers, Ford will advise customers to safely park and shut off the engine as promptly as possible upon hearing unexpected engine noises, after experiencing an unexpected torque reduction, or if smoke is observed emanating from the engine compartment."
  • Dukeisduke In an ideal world, cars would be inspected in the way the MoT in the UK does it, or the TÜV in Germany. But realistically, a lot of people can't afford to keep their cars to such a high standard since they need them for work, and widespread public transit isn't a thing here.I would like the inspections to stick around (I've lived in Texas all my life, and annual inspections have always been a thing), but there's so much cheating going on (and more and more people don't bother to get their cars inspected or registration renewed), so without rigorous enforcement (which is basically a cop noticing your windshield sticker is out of date, or pulling you over for an equipment violation), there's no real point anymore.
  • Zipper69 Arriving in Florida from Europe and finding ZERO inspection procedures I envisioned roads crawling with wrecks held together with baling wire, duct tape and prayer.Such proved NOT to be the case, plenty of 20-30 year old cars and trucks around but clearly "unsafe at any speed" vehicles are few and far between.Could this be because the median age here is 95, so a lot of low mileage vehicles keep entering the market as the owners expire?
  • Zipper69 At the heart of GM’s resistance to improving the safety of its fuel systems was a cost benefit analysis done by Edward Ivey which concluded that it was not cost effective for GM to spend more than $2.20 per vehicle to prevent a fire death. When deposed about his cost benefit analysis, Mr. Ivey was asked whether he could identify a more hazardous location for the fuel tank on a GM pickup than outside the frame. Mr. Ivey responded, “Well yes…You could put in on the front bumper.”