Chrysler Suicide Watch 28: The End of the Beginning of the End

Robert Farago
by Robert Farago
chrysler suicide watch 28 the end of the beginning of the end

"Are we bankrupt? Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with." Another milestone: Chrysler CEO Bob Nardelli used the “b word’ in public. What’s more, Boot ‘em Bob told the Wall Street Journal (WSJ) that he’s on a leash so short he can feel the hot breath of his Cerberusian owners tickling his neck hairs. Why’s that then? Because all Hell's about to break loose.

More specifically, Chrysler is about to follow GM and Ford’s lead and break loose anything that isn’t nailed down and sell it. This forthcoming “Staving Off Bankruptcy” sale should come as no surprise; this fall, Nardelli announced his intention to flog bits of the biz just after Christmas. His “operationally bankrupt” shocker is PR hyperbole, preparing Chrysler's camp followers for the divestiture to follow.

Saying that, Nardelli's “backs up against the wall” spin is a double bluff; or, if you prefer, the truth. Chrysler really is “operationally bankrupt.” Have a look at their new product plans. What product plans? Well, exactly.

While $10b is a lot of money for you and me, that’s the amount of cash GM needs just to keep the lights on. Ten billion bucks ain't enough money for Chrysler to make the long-term investment in the new product designs and technology it needs to compete for the American car buyer’s customer AND keep the company going. Period.

So what? That was never the plan. Chrysler’s new owners didn't have any intentions of investing their hard-earned money in the bottomless pit known as a product-lead turnaround. Whether or not Cerberus planned to keep the Chrysler dealer network as a kind of K-Mart store front for outsourced products, Cerberus' purchase was all about stripping and flipping.

That’s why the smartest guys in the room installed Nardelli, who’s about as much of a car guy as I am a numismatist. The Home Depot despot was charged with cutting costs and stabilizing the company until such time as it could be sold; which was to be sooner, rather than later.

Unfortunately, the private equity boys knew sweet FA about cars. They failed to realize that Chrysler’s German owners had left behind a mortally wounded automaker. Perhaps the incoming execs were dazzled by the new minivan and upcoming Ram, or the company’s total turnover. But they didn't understand that carmaking is a consumer-driven– not cost driven– business; an enterprise whose survival depends entirely on brand strength and an endless stream of class-leading products.

Cerberus never imagined that Chrysler would get this bad this fast– because they didn’t know cars. Nor did they clock the fact that the overall U.S. new car market was headed dramatically south. Cuts or no cuts, bad intelligence and bad timing have destroyed any possibility of stabilization in Auburn Hills.

Needless to say, none of this does anything more than accelerate Cerberus’ original time lines. Nardelli will continue to wield his axe even as he begins the inevitable process of dissolution. To that end, the Chrysler CEO told the WSJ that “the company will move very aggressively to dispose of about $1b in land, old plants and other assets, even if it has to sell them below book value.”

Don’t be fooled by the implications of that list. The only thing Chrysler has to sell that’s worth a damn are its MOPAR parts operation, its production facilities and the Jeep name. The “book value” of these “assets” is a Hell of a lot less now than it was when Cerberus bought them, and falling. Given the dizzying pace of vehicle production technology, unless the Chinese, Indians or Canadians (Magna) want to buy Chrysler’s U.S. production facilities, they're worthless.

Where does that leave Chrysler? Nowhere. Ten billion dollars isn’t enough to do anything more than pretty-up their current products’ dreadful interiors ("260 line item improvements") and help the automaker hold on for another year or so– albeit cutting every step of the way in the face of diminishing market share. Meanwhile and in any case, Chrysler will either sell itself to someone “below book value,” or its private equity masters will throw in the towel and file for Chapter 11.

If we had any doubts before, Nardelli’s "operational bankruptcy" remark leaves no doubt that Cerberus is prepared to cauterize its Chrysler wound and use Chapter 11 to amputate the automaker from its portfolio. Cerberus will hive off Chrysler Financial, take their tax write-off and call it a day. And consign one of America's greatest automakers to the scrap heap of history.

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  • Motownr Motownr on Dec 29, 2007

    I work in PE: a close friend is in the auto side of the buyouts. What is missing here is the recognition that the combination of GMAC and CFC really makes CG irrelevant. Cerb got CG for free...a call option on a marginal business/industry. Yes, the subprime hit at GMAC is a mess, but the losses are equally absorbed by GM. BFD. The play is to stabilize the cflo at CG, and plan for a boffo IPO on the financial side when the market eventually turns. CG? Sale to third party....Nissan, Hyundai, the Chinese. My $.02

  • Showbizkid Showbizkid on Dec 29, 2007

    It's Studebaker all over again. From the aging product line, to the negative cashflow, declining sales and lack of R&D money. Now will come the same thing that ultimately did in Stude - the public rumors of its impending demise. No one wants to be stuck with an orphan. Just ask anyone who owned an Eagle.

  • KOKing Actually a place called Sector111 in Temecula, CA was importing them for sale in the US starting around 2012. A friend had a shop right next door, and I recall seeing the very first one the owner imported for himself, and would bring it out to promote at various local events. Also shows this thing's been around for a while.
  • KevinB A $300 fine for me would be an "ouch". For someone else it may mean the electric bill doesn't get paid and there won't be enough gas to get to work.
  • Ajla I think a few of you guys need to try meditation or something.
  • SCE to AUX Historically, the Land Cruiser sold ~3000 units annually in the US for its last 15 years, so the answer is no.
  • Theflyersfan Oh boy - the sequential manual transmission. Otherwise known as "Your 16 year old driving stick the first time is smoother" transmission. I know automakers were trying new things out around this time and seeing what would stick (hint: the dual clutches won out), but even in testing, the Toyota engineers should have said いいえ、ジャンクです。(No. It's a piece of junk.) Is this seller going to get $8500? Doubt it. Way too much interior work is needed and it just looks worn out in there. St. Petersburg - salt air year round can do some wonders under the cover as well. But the exterior still looks good which makes me thing it was garage kept. So, for $8,500 - no chance. But for maybe $5,500 to $6,000 and the buyer doesn't mind some extra work to clean up the interior, maybe a decent top down sun down fun car. Just hope the transmission holds up.