By on April 16, 2010

Chrysler has always held a special place in TTAC’s chronicling of Detroit’s decline, enjoying a bespoke “Suicide Watch” in contrast to our Ford and GM “Deathwatches.” In the first entry in that series Frank Williams wrote of a gutted firm, dependent on incentives and flagging truck sales, seemingly doomed to drag its foreign partner into bankruptcy. Four years and countless opportunities for death with (some) dignity later, Chrysler presents much the same picture. Sure, it’s been rinsed of debts and excess capacity in bankruptcy court, but the Pentastar’s brands are still fundamentally damaged from years of self-abuse and the firm is struggling (and failing) to improve on last year’s sales numbers, which were recorded en route to said bankruptcy. Inventory may be under control, but Frank’s four-year-old assessment of an investor warning by JP Morgan could have been written yesterday [with “DCX” replaced by “Fiat”]:

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.

In fact, analysts from London’s Bernstein Research wrote nearly the exact same line yesterday. Chrysler has officially shuffled back onto the ledge, and once again the analysts are shouting “Jump!”

The Bernstein report, portions of which are published without subscription at Tire Business, is actually remarkably optimistic about Chrysler’s financial performance in the first quarter of this year. According to the write-up by Crain News Service:

The report praised the CEO’s cost-cutting efforts: “Mr. Marchionne and team are reportedly ‘again and again’ finding fixed cost savings” in key areas. Those cost-cutting measures have helped the company come “surprisingly close to breakeven” in the first quarter, the report said.

But, as Detroit has proven again and again, you can’t simply cut your way to viability. Marchionne’s deep industry experience may make him a more effective, efficient cost-cutter than the Cerberus boys were, but the strategy hasn’t changed much: move what we have with incentives and hope consumers hang tough with the brand until new products arrive. And with that strategy, Chrysler’s losing sales faster than it can cut costs. Bernstein may be optimistic about Chrysler’s Q1 financial performance, but the automaker ends the quarter with only 234,215 sales, a five percent decline from Q1 2009, which at the time earned such adjectives as “Medusa-class ugly,” “Yikes,” and “Bloodbath.”

This sales decline is the fundamental problem. Chrysler is burning cash on advertising, spending $170 per projected sale this year, and yet nothing will move the needle. Whether this is because the ads themselves have sucked, the product sucks or because consumers have simply decided to tune out the name “Chrysler” is a matter for debate, but ultimately the answer is academic. The important fact is that Chrysler must sell 95,000 vehicles for each of the remaining nine months of this year. Chrysler has achieved that level of volume once in the last 14 months, despite consistently offering some of the highest incentives in the market. Losing share in a weak market is a good way of showing that your turnaround needs a turnaround.

With this in mind, it’s not surprising that Bernstein concludes:

We remain unconvinced Chrysler will survive in its current form despite Marchionne’s blood, sweat and tears… A slimming down of Chrysler to be just Ram, Jeep and a U.S. production base for Fiat looks a realistic exit strategy to us

Worst of all, Bernstein is not simply recommending that Chrysler jump: it’s recommending that Fiat stockholders push. Fiat is unveiling its own five-year plan next week, and the Bernstein report was written as guidance for antsy investors. The Fiat brand, buoyed in the European market by recent scrappage schemes, is eyeing a 15 percent European sales decline this year according to Automotive News [sub]. Pressure is mounting on the Italian conglomerate to spin-off its car and truck businesses entirely, and to apportion its $11.4b in bonds. According to analysts, these transactions are “very much tied to how things go at Chrysler, which is still in the preliminary stages of the restructuring.” Scaling back the Chrysler turnaround as Bernstein suggests is likely to be seen as a popular strategy option among Fiat’s anxious stakeholders.

And ultimately, there’s little incentive for Fiat to not push parts of Chrysler over the edge. Fiat’s current 20 percent of Chrysler Group has cost it precisely nothing so far, having bought in to the bailed-out automaker with only its existing technology. Meanwhile, years two, three, four and five of Chrysler’s financial turnaround plan require the firm at least break even this year if it is to avoid a cash infusion from Fiat. We called the financial plan “leveraged assumptions” because, though it includes contingencies for market downturns, it doesn’t begin to contemplate the kind of market share declines the firm is currently facing. If Chrysler misses its 95k unit sales goal for several more months, Fiat will have no choice but to reassess its entire Chrysler turnaround plan, predicated as it is on continuous improvement in sales, market share and revenue.

Chrysler will spend untold millions over the next twelve months launching 14 “new or refreshed” products, most of them falling into the latter category. These products represent Chrysler’s last chance to survive in its current form, and to get its turnaround back on track. Having committed to keeping the Chrysler brand on life support by upgrading such sales duds as the Sebring with dual-clutch transmissions and re-worked suspension, Marchionne won’t scale back Chrysler’s five-year plans until he sees the asphalt rising to meet him, and he realizes that he missed his targets. At this point, Fiat’s shareholders and directors are the only ones capable of heeding Bernstein’s advice, calling the turnaround plan out as the pipe dream it is, and giving Chrysler (if only the brand) a tiny push.

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39 Comments on “Chrysler Zombie Watch 10: Might As Well Jump...”


  • avatar
    educatordan

    “Whether this is because the ads themselves have sucked, the product sucks or because consumers have simply decided to tune out the name “Chrysler” is a matter for debate, but ultimately the answer is academic.”

    True it is ultimately academic. I think for Chrysler it’s simply a case of the old “once bitten twice shy” phenom. I don’t know too many loyal “Chrysler buyers” especially once the Cummins diesel powered trucks are removed from the equation. I like the 300 series and the Charger but if I bought one it would be used so sorry Sergio. And having recently lost my Chrysler dealer makes me less likely to buy used cause I would have gone for CPO if I had purchased a Chrysler/Dodge/Jeep.

  • avatar
    OldandSlow

    Realistically, there is not much in the Chrysler group of brands that are class leaders and the competition such as Hyundai will have their updated designs in their showrooms long before FIAT-Chrysler.

    What’s the hold up with regards to bringing in the FIATs? Is it Federal approval or having to gut existing plants, then refitting them for FIAT’s offerings?

  • avatar
    jimboy

    Lately, my faith in these “experts” has waned. None of them saw the economic meltdown coming, which led to the loss of easy credit, which led to the bankruptcy, etc.etc.etc. Who is this guy? Never heard of him. What does he have to do with the auto business? Why should anyone care what he says? “Chrysler has the ability to survive, IF it does everything right.” That’s MY expert opinion, and we’ll wait and see who is right.

    • 0 avatar

      +1

      couldn’t agree more. I’ll wait and see what actually happens, the financial “experts” can go whistle.

    • 0 avatar
      TheFredMan

      Fully agree. Nothing in the “Bernstein report” is new news. Everyone knows the new (or even just refreshed)products do not come out until this fall. No one expected any kind of turnaround until the product arrives. Spending ad money on existing product…are we supposed to be shocked? The sales breakeven number is based on some underlying financial assumptions…improve other areas (e.g lower costs) and the number changes. Sounds like it’s not “THE” analysts saying jump…it is “their” analysts. Big difference. Find something quotebale from an analyst group with some cred.

      C’mon TTAC…must be a slow news day, eh?

    • 0 avatar
      porschespeed

      @jimboy,

      There were plenty of experts (and non-experts) who saw this financial debacle coming. Even ‘The Oracle’ warned that deriviatives and other complex financial instruments were “weapons of financial mass destruction”.

      But those dire warnings were not too popular, and were buried as short blurbs in MSM outlets. Crap like “DOW 15,000!!” is flashier and happier. Even NPR didn’t put the admonishments that the end was drawing nigh, front and center.

      The truth is almost always out there. But, you have to read a little deeper, look in slightly off the beaten track (but reliable and sane) places. Read between the lines, factor in human nature. Remember history, as it constantly repeats itself.

    • 0 avatar
      Polishdon

      First, TTAC’s policy is to bash Chrysler, regardless of the news, that’s a recurring fact. And no, I’m not flaming the website, ask anyone.

      Did TTAC (or any other writers) realize the power of their bias? Look at the talking heads on TV, it’s a perfect example of personal bias affecting the truth.

      Will Chrysler survive? it’s too early to say. But the power of positive feedback is helpful. Instead of promiting the postive “Chrysler will spend untold millions over the next twelve months launching 14 “new or refreshed” products”. They instead keep looking for ways to bury Chrysler. Even going and dregging up out of date information Why? Why don’t you go after Daimler, who pillaged Chrysler and dumped the hollowed out shell on the side of the road. Chrysler didn’t design these cars, it was Daimler doing it “on the cheap”. So cut the current Chrysler some slack !

      Personnaly, I don’t want GM, Ford or Chrysler to “die”. I’ll go on record that all three will survive. Will TTAC publically apoligize if GM/Ford/Chrysler survives ? Or will you continue to spout negative news forever ?

    • 0 avatar
      moedaman

      jimboy, Chrysler will survive “if they do everything right.”? You’re leaving yourself a pretty big out on that one. No company does everything right. And Chrysler has done little right in the last five years. So in other words you think their going to fail, but don’t want to admit it.

    • 0 avatar
      JeremyR

      Feel free to set up shop as a financial/industry analyst and see how it goes. Or start an investment fund and try to attract investors.

      “Chrysler has the ability to survive, if it does everything right,” and “wait and see” aren’t particularly useful investment advice. What exactly must it do right? What are the risks that it may not be able to execute? What are the market conditions expected to be? Investors need to know if they have a reasonable chance of making back their investment, and then some, or whether their money would be better used somewhere else.

      Those standing on the sidelines are certainly welcome to “wait and see what actually happens,” but those with real money (their own or their clients’) to invest need something a little deeper than “screw the analysis; Chrysler can make it.”

    • 0 avatar
      geozinger

      @Polishdon: I agree with your statement. Enough negativity surrounding a company will do as much to sink it as any other event, IMO.

      I’m reminded of Apple (Computer) in the mid to late 90’s as almost always being labeled as ‘beleagured” in the news articles of the day. That all seemed to change when Steve Jobs came back to the leadership of the company. While he really didn’t introduce anything truly revolutionary at the time (1998), he managed to rally the faithful and got them interested in the product again. I don’t know if Marchionne is to Chrysler as Steve Jobs is/was to Apple, but he could be.

      I don’t expect total Pollyanna-ism to help Chrysler along, either. But the constant negative drumbeat of the tones of the articles become reinforcing in the minds of the folks who don’t take the time to research for information.

      Personally, I’m hoping that all of the domestic automakers do well.

    • 0 avatar
      jimboy

      @moedaman, Yes, I did; just like every other “expert” out there. But for you, I’ll clarify a bit. Chrysler needs to get it’s product, it’s media message and it’s customer focus right on the money for the next several years. One more misstep will kill them in the eyes of the public and the media. And you would be more correct to say that ‘Chrysler has had little right done to them in the last five years’. Isn’t that what YOU meant to say? BTW, I don’t think Chrysler will fail; given half a chance, it will once again be a competitive player in the market.

    • 0 avatar
      windswords

      “Why don’t you go after Daimler…”

      I’m still waiting for my DD (Daimler Deathwatch), or does that just apply to ‘murican auto companies?

  • avatar
    DC Bruce

    Not being a business guy, I’m sure I have a deficit in the imagination department, but this “strategy” (if you want to call it that) doesn’t make any sense to me. Rather, it looks like a case of throwing good money (the taxpayers’) after bad, when the better choices would have been to either (1) shut the thing down and sell off whatever pieces could be sold or be (2) throw in a lot more money to really improve a couple of the company’s existing vehicles to buy time to come up with a full line of attractive vehicles.

    In my mind, the basic question — more basic than reliability and all that — is what vehicles does Chrysler sell today that has any appeal to a decent chunk of the market? The new, uprated, Jeep Grand Cherokee may have benefited from an injection of Daimler-Benz DNA (engines suspension), but it seems to me that the “center of the market” has moved away from “trail-rated” SUVs. The “CUV” phenomenon is proof of that.

    Other than that, what else is there that ChryCo puts out there?

    Nothing that I can think of. A lot of people agree with me, apparently, because even aggressive discounting isn’t moving the metal.

    Now, if somebody wanted to throw a lotta money into the product, I think the 300 has potential. But you have to make the interior much nicer and you have to get rid of the antiquated 4-speed autobox which, in the renter that I drove last fall, either lugged the engine or had it spinning too fast at certain moderate speeds (around 40-45 mph).

    I’m not wild about the “chop top” look, but you either accept the car’s design language or you don’t. For me, the real disappointment in the car came when I was inside. It just didn’t feel or look good. Rather than put $1000 on the hood of this car in incentives, how much better would it sell if that $1000 was invested in the interior and a better transmission?

    And, if Chrysler is going to adopt that design language, then why not develop a smaller car that also uses it? (I know LOTS more money.)

    I don’t know anything about pickup trucks, so I’m not even going to discuss that subject.

    • 0 avatar
      rnc

      My ’98 Jeep finally died and had to rent a car for a few days while looking, only place close, enterprise, had only an ’09 sebring, with around 20k on it. The interior was just crap, the engine, the transmission, the power windows, it was all just crap (interior the worst, all of the spray on chrome trim was worn off at just 20k miles).

    • 0 avatar
      jpcavanaugh

      Other than that, what else is there that ChryCo puts out there?

      The Town & Country/Grand Caravan is the only domestic entry in the minivan market. While this market has slimmed down, there are still a lot of minivans sold in this country. While this vehicle does not lead the class as it once did, it is certainly not an embarrassment (can anyone say Windstar or Venture?) and with incentives, is a heckuvalot cheaper than the Odyssey or Sienna. I spent 3 weeks with a rented GC earlier this year and was surprised how much I liked it (and yes, there was a lot of cheap looking hard plastic inside). Here in the midwest, this is the only new ChryCo vehicles that I see a pretty fair number of. A little money spent inside this vehicle could go a long way toward fighting the Odienna.

      Also, the Dodge Journey is a fairly unique piece of work – a smallish crossover that comes as a 4 or a 6, and is not bad looking. I would also add that the new Ram pickup is a very competivie vehicle.

    • 0 avatar
      DC Bruce

      @jpcavanaugh
      Having emerged from the minivan business a few years ago (when me second child went off to college), I’ve kind of lost touch with that part of the market. (Owned 2 Toyota Previas). I have noticed the latest iteration of the Chrysler car, and I don’t think the exterior styling is an improvement over its predecessor, which I found reasonably attractive, given what the stylists have to work with. The new version looks like nothing so much as a bread box on wheels.

      That said, minivans are a shrinking portion of the market (just like off-road capable SUVs), although as people-haulers they’re unbeatable and superior to any of the crossovers I’ve seen, including the new GM products.

  • avatar
    VanillaDude

    When Cerberus bought Chrysler, that was it’s last chance for a turn around. They couldn’t do it and filed bankrupsy. Since then, the Market turned down significantly and Chrysler’s product cycles are also in a turn down. There needed to be an “up” somewhere from which to cling. There aren’t any.

    Bury the body.

  • avatar
    1996MEdition

    As I work across the street from a Chrysler tranny plant, I get to see a lot of them everyday…..”Medusa-class ugly” pretty much describes the products I see.

  • avatar

    I’m hoping that some American company will buy Jeep and that Dodge and Chrysler will join Plymouth in the grave.

  • avatar
    George B

    The decision to inject money into Chrysler and give them to Fiat was just to be able to blame the “death” on Fiat. Sort of like a movie scene where the already dead person “dies” in a staged car crash to cover up the previous death. Chrysler is already dead as a viable business. Just delaying the process of selling off the good parts and pulling the plug.

  • avatar
    iNeon

    God don’t like ugly.

    At fellowship, it is customary to sample every dish, regardless of one’s tastes. If you don’t like something– don’t finish it. Bless it’s maker that they do better next time. It’s gauche to bitch and moan about the bad lasagna Mrs. Smith made last year. So the dish isn’t as delicious as it once was– so what?

    It’s still made with love.

  • avatar
    bmoredlj

    FWIW, the ads sucked (and continue to do so). The tone of the Dodge spots in particular is far more pushy and arrogant than they have any right to be. I’m not saying have an ad where a tearful Dexter appears prostrate on camera to beg the viewers to buy Dodges, but, well, actually that might be more effective.

  • avatar
    brifol5

    Now this caliber (pardon the pun) of editorial is why I fell in love with the Truth About Cars so many years ago. I’ve missed the Deathwatches and Zombie Watches since Robert’s departure and welcome them back once again. Great job Ed!!!

    • 0 avatar
      geozinger

      Wow, the death- and zombie- watches were exactly the reason I stayed away from this site for a long time.

      Nothing but dismal speculation and Beasts & Boneheads to bloviate on issues few had any experience in. You can tell who the under- and un- employed folks are on this site.

      I think since the watches went away, the site has livened up and has gained users. But it’s a guess, I have no way to access the metrics of this site.

      I come here to get away from my daily blues, but to have all of the gloom and doom that was being peddled here before to return, I would stay away permanently.

  • avatar
    lilpoindexter

    http://www.youtube.com/watch?v=vzFsLhTwY-A

    These commercials are creepy…They have a male announcer that sounds like he’s having heroin withdrawls, and I’m supposed to buy a minivan from him?

    Chrysler is like your grandma with alzheimers that just won’t die…everyone knows you’d be better off without them, but no one wants to say it.

    • 0 avatar
      picard234

      Who would be better off? The Metro Detroit area? I think we’ve seen enough carnage, thanks.

      I, for one, am “cautiously optimistic.” From what I hear, Sergio has really lit a fire in Auburn Hills (surprising to hear, because he drones in the speeches I’ve heard him deliver). If they can just hold out a bit longer… and if these refreshes are any good… they just might be OK.

  • avatar
    FleetofWheel

    Simple test for those of you who have hope in Chrysler.

    If you had to choose to invest for 10 years the sum of $1,000 (or $5K or whatever amount is meaningful to you) in either Hyundai America or Chrysler, where would you put your money?

    • 0 avatar
      LectroByte

      Sadly, this week, I think I just wrote that check… indirectly through the IRS.

    • 0 avatar
      natebrau

      Chrysler, of course. They have so far to go, that the potential return after 10 years vastly exceeds the possible return that Hyundai (being already so much better- how much better could they get?) could give me.

      So expected return = risk*value of return, and despite the much higher risk, the potential value of return of Chrysler is simply so much greater than Hyundai’s after 10 years, their expected return is higher.

  • avatar
    MRL325i

    Had a 2002 T&C Limited (bought used in ’03). Ran it to 130,000 before tranny grenaded. Comfy, practical and decent on gas. Got another (’07, again used). They cheapened it a bit but it is still nice. Maybe they should stick to these and Jeeps.

  • avatar

    My biggest concern at this moment is the Jeep. Some commenters fantacize about some “american company” buying it. It’s ridiculous. Jeep cannot survive by itself any better than, say, Carbon Motors or Checkers.

  • avatar
    Jerry Sutherland

    What really gets skipped here is Daimler’s role in the history of Chrysler-these regular “barbeque Chrysler” gatherings seem to omit that piece of the biography.

    Daimler took over a company that had a decent bank account and pretty good products and dumped them by the side of the road with less dignity than a 25 dollar hooker.

    They promised, but never really delivered, their technology to mainstream Chrysler products-aside from a few pieces on the 300 platform.

    Dieter Zetsche may have had better luck explaining a 3-4 zone defense in the NFL to the American public than he did explaining the North American car market to buyers in those brutal ads.

    They did a few things right-the 300 and Charger became “presence cars” with that massive front end and this carried on into the other lines but overall this partnership was a disaster from the start.

    I just don’t see how you can assess this company on the last few years without referring to the Daimler role in this debacle

    It’s clear to me that we are talking about the history of a very bad marriage-one that didn’t start last week so occasionally I’d like to see some fingers pointed towards Europe that aren’t aimed just at Italy…

    • 0 avatar
      wmba

      Who cares now about what Daimler did or didn’t do? Frankly, that epoch is over, done with, finished. Daimler lost the best part of $40 billion themselves. Crying about what was will not change the present situation one whit. I mean, what about the total idiots from Cerberus? They helped not one bit, not an iota. It’s done, finished. Chrysler went bankrupt.

      Now, how about what’s going on now? Will the Chrysler saga end in another failure?

      It’s a close call if they will survive. I’d like to see them make it and pay back the taxpayers, but I’m not holding my breath.

      Great editorial, Ed. Right up to snuff.

    • 0 avatar
      jpcavanaugh

      @wmba – The Daimler chapter is relevant because virtually the entire present product line is a result of the Daimler Way. Cerberus did nothing but tinker around the edges of product already in the pipeline (unless they cut the project altogether).

      Look at Chryco’s product line from 2000 and compare it to today. Is there any vehicle, with the exception of the 300/Charger that is as appealing as it was 10 years ago? There is not, with the possible exception of the Ram pickup, and that one had more Cerberus-era input than any other.

      Daimler took a company that was the most profitable auto company in the US (if not the world) and squeezed every ounce of life out of it.

  • avatar
    Robert.Walter

    “If Chrysler misses its 95k unit sales goal for several more months, Fiat will have no choice but to reassess its entire Chrysler turnaround plan, predicated as it is on continuous improvement in sales, market share and revenue.”

    Just as no military plan survives contact with the enemy, no business plan survives intact contact with reality … reassessment and adjustment are a natural part of business … only thing that maters is if the plan delivers something near the intended result without delivering something more than a few nasty surprises…

  • avatar
    msquare

    It’s clear to me these analysts have no clue of what they’re talking about. They think you can replace an entire car line in a matter of months on a whim.

    Yes, Chrysler is refreshing a lot of its existing not-so-appealing models. They have no choice, because even with all the money in the world and new whiz-bang replacements in the pipeline, they can’t just retool overnight. Nobody can.

    So you clean up your product a bit and try to steal a couple of extra sales on price. It usually works just well enough to buy some time. What are you supposed to do? Not try?

    Of course you can say they’ll make it if they do everything right. What exactly are they doing wrong going forward? Could the advertising be better? Maybe. But I think the product plan is sound.

    Jeep’s entire brand equity is based on trail-rated SUV’s. I would avoid any attempt to corrupt it. You want a crossover? Sell it as a Dodge.

  • avatar
    StatisticalDolphin

    Went to bed just after reading this editorial and comments. Had a dream… all the vehicles on the road were Chryslers or Dodges or Jeeps. All the cars at the mall and in the airport parking garages. Acres and acres of Chryslers as far as the eye could see. All the dealers were Chrysler dealers. And about half the vehicles had their grills replaced with the ‘Obama as Joker’ portrait.

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