Chrysler Suicide Watch 34: End Game

Robert Farago
by Robert Farago

Back when Cerberus bought Chrysler from Daimler, the new owner’s spinmeisters were highly animated. “We’re quicker than quick,” they proclaimed. “Our private equity owners don’t answer to The Street. We can make decisions– and get things done– fast.” The party line was designed to counter fears that Cerberus had bought-in simply strip-and-flip Chrysler. Uh-uh. They were going to restructure the ailing American automaker. Right now. And then… nothing. As Billy Preston said, nothing from nothing leaves nothing.

There’s plenty of mystery and inconsistency surrounding Chrysler’s short-term future. Several suppliers tell us ChryCo’s changed payment terms from 45 to 60 days, and unilaterally lopped-off five percent from their bills. We know of one supplier that’s owed millions, that hasn’t been paid in months. This indicates a severe and entirely predictable cash crunch for a company whose CEO admitted (just four months after Cerberus’ purchase) that his employer was “operationally bankrupt.”

But Chrysler’s paying other vendors the full amount owed, on time. And one of our Best and Brightest reports that Chrysler’s upped its seat orders for minivans, Dakotas, Journeys and some Jeeps. At the same time, we hear rumors that Chrysler will file for Chapter 11 by August, to maintain the option of suing Daimler for selling them a bill of goods. And yet Chrysler’s trotting-out octogenarian legend Lee Iaccoca to rally the troops. Why bother with the warm fuzzies if the pink slips are at the printers?

But it’s what Chrysler HASN’T done that’s the real news. Two months after Jim Press left the top of Toyota to join the over-moneyed executives in Auburn Hills, the nets were all abuzz with model termination. Sure enough, Chrysler Pacifica, Crossfire, convertible PT Cruiser and Dodge Magnum were lopped off the dealer menu. Chrysler signaled that there was carnage more to come. Only… there wasn’t. Despite journalists’ helpful lists of DOA-mobiles– Jeep Commander, Dodge Durango, Jeep Compass, Dodge Nitro and so on– the models are still in production.

That’s as far as anyone knows. Sales of these vehicles are so far down the rat hole (e.g. Durango sales down 68.8 percent in May), their inventories are so large (e.g. there’s a 117-day supply of Jeep Commanders), that Chrysler could stop building them without much impact on, well, anything. With GM closing four truck plants and Ford slicing production as fast as it can, you’ve got to wonder why Chrysler– the “quick one”– doesn’t cut bait and fish. Where’s their “cut your way to prosperity” turnaround plan?

Chrysler can’t afford it. Lest we forget, GM and Ford are paying mega-billions to buyout their excess union workers. ChryCo’s private equity owners have deep pockets, but any large-scale effort to downsize their automotive holding would force them to borrow big bucks, miring Cerberus even deeper into their Chrysler quagmire. Clearly, sensibly, they don’t want to go there.

Besides, the REAL game is strip-and-flip. (Always has been.) Why commission wholesale structural changes when you’re going to break up the parts and sell them off? A lick of paint for curb appeal (i.e. a hybrid or something) and Bob’s your uncle. Alternatively, if Cerberus’ longer-term dreams of The Mother of All strip-and-flips have become a cash conflagrating nightmare, Chapter 11 protections will give Chrysler’s eventual owners the freedom to kill models, shutter factories and “modify” union contracts. Call it the “screw this, we’ll unload this thing as a fixer-upper” strategy.

Again, the signs coming from Chrysler are not clear on ANY of these points. Why would they be? Cerberus didn’t get to a size where it could afford to buy Chrysler (at a whacking great discount) by telegraphing their every move to the press or, for that matter, their own employees. We’ll just have to watch the signs– Company-wide summer break? ResCap going under?– to see if and when Cerberus says draws a line under this misguided misadventure.

In that sense, the real question here is whether or not Cerberus is at the point where they’d rather take a hit to their reputation than a hit to their finances. This makes Chrysler’s immediate future a contest between expediency (i.e. greed) and ego (i.e. hubris). While I don’t think that the fact that Chrysler is purposely mistreating some of its suppliers indicates that the company is preparing to pin the blame on the donkey, as some of our commentators have suggested, it does tell us that the end game is near.

There's no question in my mind that Chrysler is headed for dissolution. If Cerberus was going to “save” Chrysler they would be doing something, anything to that end. Never mind all the announcements about foreign partnerships. Black Tuesday has revealed that the time to act is now. (Well, three years ago.) Chrysler’s silence speaks volumes. It tells us the once-proud automaker’s final chapter is about to be written.

Robert Farago
Robert Farago

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  • John Horner John Horner on Jun 14, 2008

    I'm pretty sure Mitsubishi stopped making CJ-3B style Jeeps in 1998, but Mahindra of India still cranks 'em out. Speaking of which, Mahindra and Tata are both reported to have been asked if they want to buy Hummer.

  • Jeepaholic Jeepaholic on Jun 20, 2008

    chryslers truck lines will be down to necessary users...i.e contractors, farmers, fleets. people who trucks were invented for. I fore see the sprinter line picking up...well maybe, after all over 30k for a bare bones van, even if it gets in the high 20's in the fuel economy dept. is hard to justify. word has it that Mahindra is going to attempt a purchase of jeep. How that will go over with the jeep faithfull will be a sight to see! However a true jeep fan will know that Mahindra exists because of jeep. a pairing of mahindra and jeep may work out for the better. they will be bringing their 30+ mpg 4x4's and trucks over here next year. and they still make a version of the cj3b. so who better to buy-out jeep that...a former jeep subsidiary. if mahindra buys jeep i bet they will use the jeep name to market their pick-up (the appalachian) here. suppposedly the pik-up, as its called in the rest of the world... is a tough little truck. but their farm tractors arent well liked here. so maybe the name is what they need.

  • Mike Some Evs are hitting their 3 year lease residual values in 6 months.
  • Tassos Jong-iL I am just here for the beer! (did I say it right?)
  • El scotto Tim, to be tactful I think a great many of us would like a transcript of TTAC's podcast. 90 minutes is just too long for most of us to listen. -evil El Scotto kicking in- The blog at best provides amusement, 90 minutes is just too much. Way too much.
  • TooManyCars VoGhost; I was referring more to the Canadian context, but the same graft is occurring in the US of A and Europe. Political affiliation appears to be irrelevant.
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