Chrysler's Sorry State Revealed

[Nateness]

Chrysler's sorry state revealed
Bankruptcy court filings reveal the complications the auto business - and just how much trouble Chrysler is in.



NEW YORK (Fortune) -- Among the thousands of pages of documents filed in connection with Chrysler's Chapter 11 bankruptcy are affidavits from Chrysler executives that open up a window on the auto business previously closed to outsiders in this intensely competitive business.

They reveal an almost unimaginable complexity in the design, manufacturing, and distribution of new cars.

But what's more revealing is that the affidavits expose Chrysler's inability to successfully compete and the dangers facing the company in a prolonged bankruptcy.

Consider:

Chrysler pays its suppliers 45 days after delivery. So if it suspends production - as it has now - for more than 45 days, the suppliers would have to resume manufacturing without their regular source of revenue. According to Scott Garberding, Chrysler's chief procurement officer, this imbalance of expenditures and revenues would be "catastrophic" to these marginally profitable companies.
As long as Chrysler remains in bankruptcy, it will suspend development of new models. But it can't simply restart development months from now and expect to pick up where it left off because, in the words of Frank Ewasyshyn, a top engineer, "we lose some of the learning and expertise" about the new model. In the affidavit, he figures that work done after a restart will take one-and-a-half times longer than work done before.
The longer Chrysler suspends production, the more it will cost to start back up, according to Ewasyshyn. The fluids that flow through the lines and equipment are perishable and must continue to flow, even when cars aren't being built. Paint is a particular problem. "Paint should be removed and stored after 21 days at a cost of $2 million," he said. "After 69 days, paint would need to be replaced at a cost of $15 million."
Chrysler can't start making 2010 models until it finishes building the 2009 models presently sitting on the assembly line. So the longer Chrysler is shut down, the later its 2010 models will be to reach showrooms.
Chrysler vehicles are such slugs on the market that 20% to 25% of the wholesale cost goes to dealer incentives, according to Peter Grady, director of dealer operations. Yet not only were there 286,687 2009 models - more than three months supply - sitting on dealer lots at the time of the filing but there were 36,370 2008 models left. In other words, they had been sitting around unsold for more than a year.
Dealers depend on cash flow to support their operations, but as Chrysler neared its financing deadline, the checks stopped coming. A West Palm Beach dealer named James Arrigo reported that Chrysler owed him $639,000 in consumer rebates, $426,000 in warranty and parts receivables, $13,000 in new vehicle receivables - in total $1.7 million. The dealer reduced his monthly expenses from $2.1 million to under $1.3 million in an effort to stay afloat.
Chrysler's dire condition explains why vice-chairman Tom LaSorda has been so busy trying to sell the company - and why he has been so unsuccessful. LaSorda revealed in his affidavit that he had spent two-and-a-half years trying to find a partner for Chrysler. He approached most of the world's top auto companies: GM (GM, Fortune 500), Volkswagen, Toyota (TM), Honda (HMC), Nissan, and Hyundai - as well as India's Tata Motors, Russia's GAZ, parts maker Magna, and a number of Chinese companies.

"No party except Fiat emerged as a viable and winning alliance partner for us," LaSorda reported. After reading the affidavits, you begin to understand why.

You also begin to understand why the chances of Chrysler emerging from bankruptcy in any shape that resembles intact looks increasingly unlikely.

(Additional reporting by Doris Burke)

First Published: May 11, 2009: 2:10 PM ET

Sounds like they knew this was coming for some time.

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[JC]

I'm really surprised Cerberus bought them in the first place. I would like to see their plan on how they were going to make money.

[Spenk]

GAME OVER.


I want my tax $$ back.

[Indocti Discant]

Originally Posted by JC

I'm really surprised Cerberus bought them in the first place. I would like to see their plan on how they were going to make money.

cut costs, sell in 2 yrs. they had their head so far up their ass they could see their own tonsils.

[Not-EWRX]

[Yotsuya]

Originally Posted by JC

I'm really surprised Cerberus bought them in the first place. I would like to see their plan on how they were going to make money.

I would posit they were looking to make a quick sale but didn't know just how bad things were. Even business 'experts' can make huge mistakes. Hubris, maybe?

[SCRAPPYDO]

Let it die, give not one red dime to Chrysler, instead, keep the vendors afloat, as GM and Ford still need them.

Cut off the head, but keep the body on life support so to speak

[imprezaowner27]

Why are we even trying to save chrysler? really thou?

they make mediocre cars, at mediocre prices, that NOBODY wants, people just buy it because they can get a decent deal on it

i dont know, maybe im ignorant, but i couldnt tell you a model name for one, besides the sebring convertible because i see some around, but other than that...i got nothing

[Dex]

Yet not only were there 286,687 2009 models - more than three months supply - sitting on dealer lots at the time of the filing but there were 36,370 2008 models left. In other words, they had been sitting around unsold for more than a year.

Talk about waste. Jeeez. Just give them all to Enterpise Rental.

This is going to be interesting.

[Lboogie]

Worst part is, this isn't Chrysler's' first time at the rodeo:

- Bailout in 1979 to the tune of $1.5 billion, thus avoiding bankruptcy. Company sold off defense subsidiary & repaid loans emerged profitable by 1983.
- Purchased by Daimler-Benz in 1998, then sold to Cerberus Capital Management in 2007.
- U.S. Govt gives Chrysler/Cerebus a couple handfuls of BILLONS of taxpayer $$ to stay afloat until Fiat can come save Chrysler.

Isn't that 3 strikes? Shouldn't Chrysler be gone??

[controler]

Originally Posted by JC

I'm really surprised Cerberus bought them in the first place. I would like to see their plan on how they were going to make money.

They bought them for Chrysler Financial, the manufacturing was a "free-be". With their share of GMAC, Cerberus now has the largest share of auto loans in the industry.

[Dex]

Originally Posted by Lboogie

Isn't that 3 strikes? Shouldn't Chrysler be gone??

I don't think Captain K is coming back with the Le Baron to save the day, so they are probably done.

[rbl2]

Originally Posted by controler

They bought them for Chrysler Financial, the manufacturing was a "free-be". With their share of GMAC, Cerberus now has the largest share of auto loans in the industry.

That was a pretty stuipid move as well. Chrysler Financial is in the midst of shutting down.

The new Chrysler will not have a dedicated finance arm.

[KidCorporate]

I feel sorry for Jeep.

[hkerekes]

Originally Posted by KidCorporate

I feel sorry for Jeep.

I dont. 1980's Jeep look about the same as 2009's Jeep.

I heard a Chrysler dealer owner on the news the other day. " Business is great, we have good deals on good cars, etc, etc, Chrysler has been in trouble a few times before and they always bounce back better than before". Keep trying, you will eventually get it right.

[GuyLR]

Originally Posted by Lboogie

Worst part is, this isn't Chrysler's' first time at the rodeo:

- Bailout in 1979 to the tune of $1.5 billion, thus avoiding bankruptcy. Company sold off defense subsidiary & repaid loans emerged profitable by 1983.
- Purchased by Daimler-Benz in 1998, then sold to Cerberus Capital Management in 2007.
- U.S. Govt gives Chrysler/Cerebus a couple handfuls of BILLONS of taxpayer $$ to stay afloat until Fiat can come save Chrysler.

Isn't that 3 strikes? Shouldn't Chrysler be gone??

Your facts are wrong. The 1979 "Bailout" was in the form of loan guarantees. Chrysler went out on the open market for the 1.5 billion and the government guaranteed them against default. No taxpayer money was used that time and Chrysler even paid off the loans early. But that was still the old Chrysler and not the shell left behind by DB and Cerebus.

[brianbot5000]

Originally Posted by KidCorporate

I feel sorry for Jeep.

I think that Jeep is a strong enough brand that, if Chrysler doesn't survive, Jeep could be sold off as a separate entity. At least, that's a hope...I'm not a huge Jeep fan, but they do have a certain mystique and history.

[Dave D.]

Originally Posted by brianbot5000

I think that Jeep is a strong enough brand that, if Chrysler doesn't survive, Jeep could be sold off as a separate entity. At least, that's a hope...I'm not a huge Jeep fan, but they do have a certain mystique and history.

Well, Jeep's gone from Willys to AMC to Chrysler -- who's next?

I say Honda buys Jeep to compete with the Land Cruisers and 4Runners.

[SlideWRX]

Some articles, during the '79 bailout, and in '83 afterward, are eerily familiar to what we are going through now.

http://www.time.com/time/magazine/ar...947356,00.html

http://www.heritage.org/Research/Regulation/bg276.cfm

[Yotsuya]

Maybe Renault will buy Jeep back.

right!

[Masterauto]

Unfortunately Citizens burdened with bailing banks, Car Co's and state and city Govt may no loner afford to buy any cars . Both disposable and discretionary income are crumbling if you still have an income. This wall of dominoes may go tumbling wild. I guess we can all ride the billion $ railroad upgrades Obama wants.

[Yotsuya]

Bold makes it so, and off to pee pee you go...

[Dex]

Originally Posted by Yotsuya

Bold makes it so, and off to pee pee you go...

Silly veteran. The rules thread isn't really supposed to be read, it's just to make the forum look official.


Edit. In re-viewing the rules. It left out all bold. Just leet, MySpAcEtArd, and all caps.

[hondahata]

And the West Palm beach dealer is a big one.....that guy must have 400-500 new cars on his lot.