Marchionne Blames Bailout For Profit-Free 2010
We’re hardly shocked by the idea that Chrysler won’t turn profit this year. After all, Auburn Hills has barely made its minimum monthly sales volumes (at best, and with rampant incentives and fleet mix) this year, and lost $50m+ in “industrial inefficiencies” on the Jeep Grand Cherokee launch alone [ Q2 results analysis here]. With plans to close out the year with a non-stop barrage of product launches and attendant media spending, it would take a minor miracle for Chrysler to break even. But we’ve essentially known this all for some time… what’s truly shocking is that Chrysler’s CEO Sergio Marchionne actually admitted to the media that Chrysler won’t turn a profit.
Ever since Marchionne rolled out his Five-Year plan for Chrysler last October [ full TTAC coverage here], he’s baited his critics and insisted that Chrysler would at least break even this year. And really, he’s had little choice but to stick to his guns, as the Chrysler turnaround is predicated on the assumption of continuous sales and profit growth. And after presenting himself as an anti-incentive, anti-volume-pushing executive, the sales, incentive and fleet mix numbers coming out of Chrysler are killing Marchionne’s credibility. Which is probably why he has finally admitted that, as the DetN paraphrases
it will be “difficult” for the automaker to turn a net profit this year.
It doesn’t sound like much, especially given that top-end estimates for 2010 financial performance in the Chrysler Five Year Plan estimated a maximum profit of $200m. But by Marchionne standards, this is a big admission. Not that he doesn’t have an excuse, of course.
And it’s an excuse that we’ve seen coming ever since Bertel picked up on the first hints of whining about liquidity at Auburn Hills. At yesterday’s factory tour with Vice President Joe Biden (money quote: “you’re doing a heck of a job, Sergio”), Marchionne trotted out the old cost-of-cash argument again, telling Reuters that
Chrysler would already be showing net profits if it had not borrowed from the U.S. Treasury in order to have operating cash… “All the money given to us was debt”
See, if taxpayers had just given Chrysler $14b with no expectation of ever seeing it again, there would be big profits in Auburn Hills right now. But then, what business wouldn’t turn a profit after getting its debt rinsed clean, its bad assets spun off, and a $14b no-obligation cash injection? But after suggesting that taxpayers are somehow responsible for Chrysler’s woes, Marchionne has the gall to claim thatWe are delivering on everything we said. We are doing it quietly, keeping our head downWhich is patently untrue. Marchionne has made a sport of lashing out at his critics, while failing to deliver meaningful progress on the major problems facing Chrysler, namely that it can’t even make minimum volume without relying on fleets and incentives. If Marchionne were actually “doing everything he said he would do, quietly,” Chrysler might not be topping the industry’s fleet and incentive mix (or claiming that he could… Autosavant did the math and reckons Marchionne’s goal of a 25% fleet mix is mathematically as good as impossible). More to the point, when he did bring his head up to comment on Chrysler’s condition, he might take ownership of the demand-side problems, rather than exacerbating them by blaming taxpayers for insufficient generosity. After all, GM has proved that perceptions can linger long after product starts improving. Blaming the bailout for a lack of net profit is not the way for Chrysler to work its way back into the hearts of American consumers.
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Thanks, splateagle. Marchionne is not whining, he's pointing out that, contrary to public opinion, Chrysler was not simply given billions of dollars by the taxpayer, it was loaned the money. Nowhere in his statement do I hear any suggestion that the money should have been an outright gift from the federal government. The bile being spewed here is utterly uncalled for and Mr. Niedermeyer doesn't even have his facts straight: Chrysler's fleet percentage has indeed been excessive but its per-vehicle incentive spending in July ranked below both GM and Ford. Obviously the Fiat/Chrysler management made some overly optimistic projections about sales and profits. No one could have known exactly how things would play out over the course of the year, and without a little optimism it's hard to imagine how anyone in Auburn Hills could even get up for work in the morning.
It's really just a question of how you spin the statements made by Mr. Marchionne. The way I spin it- Chrysler has done extremely well to survive in a devastated market, while revamping its complete product line up. The fact that it is still selling its older models at the rate of 95k a month should tell you that some people still value their product, fleet or not. ( In the retail business, a sale is a sale, and discounting is very common.) The fact that Chrysler still exists is in no small part due to his policies, and I am personally grateful for that. I am continually surprised, especially at journalist's, who keep expecting an instantaneous turnaround. If you had made these comments a year from now, I would agree with you, but right now the patient is just coming off life support, give it time to heal before you pronounce it dead. FIAT was handed a stinking pile of s**t by Cerberus and DCX that they spent 10 years building. No one can turn that around in the brief time Sergio has had to work with. If they break even this year, that will in itself be a near miracle. As I said, save this column for a year, and if Chrysler hasn't made huge improvements by then, I'll eat the paper it's printed on. 'Nuff said