Can Fiat put Chrysler on road to recovery? “Fiat is easily the weakest of all the major automotive companies. It does not even generate enough revenue to fund its own investment.” If Daimler-Benz couldn’t turn Chrysler around I’m having a hard time seeing how tiny Fiat could.
Mickey Kaus: “P.S.: Chrysler can learn from its new partner: Chrysler scored second to last in customer satisfaction in this 2009 survey of “vehicle ownership satisfaction” in the U.K. Only one company did worse! … That company? FIAT. …”
Why is Chrysler closing 789 car dealerships? “Toyota sells more cars than Chrysler with fewer than one-third of the number of franchises. (The average Toyota dealer sold 1,589 vehicles in 2008; the average Chrysler dealer sold 124.)”
Chrysler’s sorry state revealed via Tam:
- 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.
- 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.
As the administration has pointed out in defense of its plan to commandeer the bankruptcy process, asset sales (known as 363 sales, based on the relevant provision) have become a common feature of Chapter 11 cases in the last 20 years. What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans. It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut. The usual rule is that senior creditors must be paid in full before lower priority creditors are entitled to anything.
Why I Am Freaking Out. “BTW, to compare what’s going on at GM and Chrysler today to Chrysler in 1980 is apples and Agent Orange: In 1980, the US government guaranteed Chrysler’s bonds. In 2009, the US government is guaranteeing CHRYSLER—and GM too.)” True. Unlike Obama, Jimmy Carter didn’t promise to warranty the transmission on your Plymouth mini-van. More:
Moreover, Team Obama hasn’t presented any rationale for the de facto nationalization of Chrysler and GM—so what’s to stop any other industry (or union) from asking to be nationalised? I’m not one of these fools who says that any state-run enterprise is “Communist” or “Socialist”—I would prefer bankruptcy for an insolvent business, but on principle I have no problem with a government takeover of a business or industry, so long as there is a clear, compelling, non-trivial, non-political reason, and so long as there is a clear horizon for the exit of the government, if the interference was for exigent or unique reasons. But the arbitrary de facto nationalization of Chrysler and GM through this sham (and probably illegal) pre-pack bankruptcy has no rationale, no raison d’etre, aside from propping up some union (which is receiving a shockingly sweet and possibly illegal deal in the Chrysler case, a deal presumably to be repeated in the imminent GM bankruptcy)—the way it’s being done makes no rational business sense, but makes terrific POLITICAL sense. These are the twin problems with Team Obama and their auto industry meddling: It’s not that they are meddling in the private sector, it’s that they’re giving priority to political considerations over financial or macroeconomic considerations, and they’re meddling without a clear and compelling rationale, opening the door for every private business to seek state subsidy so long as they have the political muscle to get the sweet taxpayer-financed deal out of Team Obama.
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