By on July 29, 2008

It\'s a Mad, Mad, Mad world... (courtesy imperialclub.com)Fitch Ratings has access to information about Chrysler's finances that neither you nor I nor a whole bunch of really powerful people can access. Now that Chrysler's eliminated leasing, Fitch doesn't like what they see. They've downgraded Chrysler from B- to CCC, with a negative outlook. Not to get too technical, it's yet another indication that Chrysler has one foot in the grave. Or, if you prefer, MarketWatch reports that "The downgrade reflects Chrysler's restricted access to economic retail financing for its vehicles, which is expected to result in a further step-down in retail volumes. Lack of competitive financing is also expected to result in more costly subvention payments and other forms of sales incentives. Fitch is also concerned with the state of the securitization market and the ability of the automakers to access this market on an economic basis over the near term, given the steep drop in residual values (particularly in SUVs and pickup trucks), higher default rates, higher loss severity being experienced and jittery capital markets." Cash burn? Oh yeah, cash burn. "Fitch expects that Chrysler could reach minimum required levels to finance ongoing operations in the second half of 2009. This could be accelerated in the event that suppliers or retail customers become concerned with Chrysler's financial condition and restrict trade credit or reduce retail purchases." 

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16 Comments on “Fitch Downgrades ChryCo to CCC, Outlook “Negative”...”


  • avatar

    FYI, from Fitch:

    CCC = Obligations for which there is a current perceived possibility of default. Timely repayment of principal and interest is dependent on favorable business, economic or financial conditions.

    There is only one lower category before default.

  • avatar
    Gardiner Westbound

    A downgrade from B- to CCC with a negative outlook is analogous to the CIA’s euphemism for assassination, termination with extreme prejudice.

  • avatar
    Pch101

    I’m no cheerleader for Chrysler (trust me, if you saw me in a short skirt, you wouldn’t argue with that statement), but it seems that Fitch is playing a game of too-little-too-late here.

    For some context, the rating agencies are catching a lot of grief for the current credit crunch and financial crisis. It’s convenient for the managers and government not-quite-regulators to blame the due diligence people, and the fingerpointing distracts us from blaming who is really at fault.

    But hey, this is what we do at times like these. The raters are reacting by downgrading anything and everything that moves, just so that they can claim that they are on the ball. So you can expect just about everyone to drop a rung or two down the ladder.

    The leasing thing is more of a symptom than a problem. Companies like Chrysler have used leasing to inflate inventory turn and to exaggerate their market share, when they have been effectively using other people’s money to pay customers to rent their vehicles. They were effectively just another form of rebate, no different in their insidiousness than “employee pricing”, rebates and all those other hints that the sticker prices were totally meaningless.

    This whole thing has been bogus for a long time, and it has taken just about forever for the financial pundits who don’t understand cars very well to finally see the cracks that have been there for a long time. This is more of a matter of the chickens coming home to roost to a company that has long been too truck-heavy, than a sign of new trouble.

    Lease or sale, beg or borrow, Chrysler just doesn’t have enough vehicles that enough customers want. It’s tough to generate revenue when nobody wants to pay you for what you have to sell.

  • avatar
    powerglide

    “He went sailing right out there. Did you see the way he went just went sailing out there? I mean he just went sailing right out there.”

  • avatar
    Axel

    What’s the probability of default on a CCC rating?

  • avatar
    jolo

    What is between B- and CCC? Is this a single step drop or are there other steps inbetween? What does each step mean (aside from knowing what CCC is, which RF told us about). For those of us who don’t have the finance background…

  • avatar
    wmba

    Well, I finally decided to surf the Cerberus website. Hmm, they have some decent companies in their portfolio, and some dogs like Air Canada, which like many airlines is shedding manpower by the hundreds. Course, they don’t own Air Canada outright, just a portion, and their portion is headed by the guy who used to be the Air Canada CEO. Wheels within wheels and quite confusing.

    Then there’s Chrysler. Oh dear. Still it’s worthwhile reading what Cerberus’ Chairman John Snow said to the NPC just about exactly a year ago. It was Cerberus’ last public statement.

    http://www.cerberuscapital.com/news_press_release_07202007.html

    Snow used to be head of NHTSA. Even more wheels within wheels.

    Perhaps Cerberus should have chosen their leader by selecting the last CEO (Managing Director) of Rothschilds Bank. Then there’d be money for leasing just for old times’ sake.

    Maybe.

  • avatar
    GS650G

    Call this terminal cancer.

  • avatar
    Cicero

    The picture says it all.

  • avatar
    Rix

    This pretty much kills any chance of Chrysler getting traditional financing. Pension funds and insurance companies are prohibited by law from investing in debt rated this low.

    Here are Fitch definitions:
    Speculative Grade

    BB
    Speculative. ‘BB’ ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

    B
    Highly speculative.
    # For issuers and performing obligations, ‘B’ ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
    # For individual obligations, may indicate distressed or defaulted obligations with potential for extremely high recoveries. Such obligations would possess a Recovery Rating of ‘RR1’ (outstanding).

    CCC
    # For issuers and performing obligations, default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic conditions.
    # For individual obligations, may indicate distressed or defaulted obligations with potential for average to superior levels of recovery. Differences in credit quality may be denoted by plus/minus distinctions. Such obligations typically would possess a Recovery Rating of ‘RR2’ (superior), or ‘RR3’ (good) or ‘RR4’ (average).

    CC
    # For issuers and performing obligations, default of some kind appears probable.
    # For individual obligations, may indicate distressed or defaulted obligations with a Recovery Rating of ‘RR4’ (average) or ‘RR5’ (below average).

    C
    # For issuers and performing obligations, default is imminent.
    # For individual obligations, may indicate distressed or defaulted obligations with potential for below-average to poor recoveries. Such obligations would possess a Recovery Rating of ‘RR6’ (poor).

  • avatar
    Landcrusher

    Great choice on the pic, RF.

  • avatar
    Flarn

    Not for nothing, but that’s a Ford flying over the precipice.

  • avatar
    Happy_Endings

    Is the pic from Toonces, the car who could drive a car?

    If folks are interested in knowing what GM and Ford’s credit rating are; GM is one grade from becoming CCC from Finch and Ford is two grades away.

    http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/stuck_in_reverse.html

  • avatar
    Flarn

    The pic is of a 1957 Ford convertible sailing off a cliff in 1963’s It’s a Mad, Mad, Mad, Mad World.

  • avatar
    capeplates

    It’s a Mad Mad Mad World seems to describe the current automotive market in 2008

  • avatar
    Busbodger

    Wonder how bad off it was after the landing? Any pics out there?

    The Ford not Chrysler… I think Chrysler is screwed.


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