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Chrysler sale near, some predict
As 2009 line debuts, Cerberus says year is too soon to recover

CHELSEA While Chrysler LLC gathered journalists from around the world last week to its Chelsea Proving Grounds to show off its 2009 model year lineup, there are growing concerns about the future of the Auburn Hills automaker.
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An influential annual study of the U.S. automotive product pipeline says Chrysler's lack of future product plans is an indication of a near-future breakup or sale by the automaker's majority-owner, Cerberus Capital Management.

"Chrysler's product pipeline severely lags the industry on a number of key metrics, which is an ominous sign for its market share," Merrill Lynch's recently issued Car Wars report said. "We believe that this is an active decision by new owners to rationalize the product portfolio in advance of a breakup/sale."

A Chrysler spokesman called the prediction of a sale ridiculous and a Cerberus spokesman said the private equity firm has "a model that is buy, fix and hold."

Industry analysts are predicting the next 18 months or so could be incredibly trying for the truck-heavy Chrysler, especially as $4-a-gallon gasoline leads more car shoppers to turn to fuel-efficient cars.

"Chrysler's product pipeline over the near term is relatively modest, indicating that the company's lineup may remain misaligned with the market," a note by Fitch Ratings said last week. "Limited cash resources and capital constraints remain a distinct competitive disadvantage in a period of rapid product migration and technological change."

Although questions about Cerberus' long-term plans are not new, questions about Chrysler's ability to weather the ongoing collapse of the U.S. auto industry seem to be growing louder.

Credit agencies are further downgrading or warning about potential downgrades of Chrysler's credit rating. The automaker has tapped a $2-billion loan allowed under the original deal by Daimler AG to give majority control of Chrysler to Cerberus last August.

Concerns about Chrysler's future reached such a fevered pitch Thursday in Europe that Chrysler spokespeople issued statements saying the company was not considering bankruptcy.
Exec says goals being met
It's hard to say how exactly Chrysler will fare or is faring.

Chrysler and Cerberus officials have been consistent in saying the automaker is meeting internal goals.

As recently as Tuesday evening, Chrysler Chief Financial Officer Ron Kolka sent an e-mail to employees echoing this message. "Despite the challenges, we are meeting or exceeding our financial targets," he wrote.

The list of bad news for Chrysler in recent weeks has mounted from low quality rankings to dropping sales numbers (down 19.3% so far this year).

The automaker already has announced plans to eliminate as many as 25,000 jobs, to cut four models and to step up consolidation of its dealer network. But ChryslerChief Executive Officer Bob Nardelli has admitted that this year's plan was crafted for a better market than what's been seen over the past few months.

Part of the plan to reduce its number of dealers involves scaling back its product lineup: eliminating overlapping models between its three brands, Chrysler, Dodge and Jeep. Dealers have said they believe the automaker will slash a third or more of its lineup.

Meanwhile, Chrysler also is looking to get into new segments, such as small cars, without having to spend much money. It has deals with Chinese automaker Chery Automobile Co. and Japanese automaker Nissan Motor Co. to get small cars to sell under a Chrysler brand name. The Nissan-Chrysler small car is not expected until 2010.

Chrysler officials have said they have stepped up efforts to bring a new midsize car to market to replace the struggling Chrysler Sebring and Dodge Avenger, but that's still a few years off.
"The widely reported product cancellations combined with our forecast put the Chrysler replacement rate at the bottom end of the range for the next four model years," according to the study, whose lead author was research analyst John Murphy.

The study shows Chrysler replacing just 51% of its sales volume with new models over the next four years.

Other automakers are projected to replace from 66% to 80% of their lineups.

History shows that new models are closely tied to sales.

Chrysler's average replacement rate over the past decade was 15%. Its market share has decreased 2.3% in that time period.

General Motors Corp. and Ford Motor Co. had equal or lower replacement rates and lost more U.S. share than Chrysler. Toyota Motor Corp. and others had higher rates and gained market share.
Negative ratings
As a privately held company, Chrysler's finances are not public like a publicly traded company. But recent windows into the automaker's books look bleak.

On Wednesday, Fitch Rating said that if the industry's troubles carry into next year "negative cash flows could result in Chrysler's liquidity position reaching minimal required levels in late 2009."
Kolka's e-mail this week was to reassure employees about minority-owner Daimler AG's announcement Tuesday that Chrysler has drawn down a loan previously promised to the U.S. automaker.

"As part of the original terms of the transfer of majority interest in Chrysler to Cerberus, both Daimler and Cerberus agreed to fund a $2-billion second lien of debt for Chrysler. The contract also stipulates that Chrysler is required to draw the funding within 12 months of the closing date" of Aug. 3, 2007. Kolka wrote.

He also noted: "The drawdown ... is not related to current economic conditions."
Brands attractive globally
The Merrill Lynch study suggests that Chrysler's Jeep brand could be sold to an international automaker looking to enter the U.S. market.

The Renault-Nissan alliance might be interested in Chrysler's pickups and minivans, and the car business could be wound down, the report said.

"The most crucial part of this breakup/wind-down is that it is executed in a relatively orderly fashion, which will be a positive event for other automakers, especially for GM and Ford," the report said.

But the sale theory doesn't sit well with Rick Deneau, a Chrysler spokesman.

"This idea that ... we're not doing vehicles because we're selling off the company, that's just ridiculous," he said.

Tim Price, Cerberus managing director, said in a statement: "We have a model that is buy, fix and hold. We believe Chrysler's success story will play out over the next 5-10 years. You can't judge an investment like this after just a year."

Chrysler also questioned the notion that it lacks future product.

Chrysler says it is launching 20 all-new and 13 refreshed vehicles between 2007 and 2009.

"Even if you have a year that isn't 10 vehicles ... it could be that it's not the time for the redo," Deneau said.

In fact, Chrysler showrooms will have among the newest lineups, according to the Merrill Lynch study, largely thanks to product cancellations and major recent launches, such as the Dodge Ram this summer and last year's Dodge and Chrysler minivans.

But those vehicles are in shrinking segments.

Erich Merkle of IRN Inc. agreed that Chrysler's product lineup is thin over the next few years. "It's my belief we'll start to see some improvement in '09, but they don't have any product coming into the marketplace, which is going to make things difficult for them in '09 as well. That's a long time for them to have to gut this thing out," Merkle said.

Looking to future small cars and the next Jeep Grand Cherokee likely for the 2011 model year he added that, "2010 can't come fast enough."

Contact TIM HIGGINS[/b] at 313-222-8784 or thiggins@freepress.com.[/align]

 

I don't think this will happen, but I do think Chrysler will not survive in it's current state. I do see Chrysler merging with Nissan or someone within a few years. It was beaten to near-death by the Germans and it's in trouble

 

Hmmmm, a ricer Dodge. That should make for some interesting postings!!!

Dusty

 

if Chrysler is broke up...honestly, the only brand i see surviving is Jeep........the trucks aren't selling, the minivan plants are being idled untill October, STL North truck plant is going down to 1 shift instead of the normal 2......the wrangler is still selling really well...........i don't think they would break up the company, but if they do i really only seeing one brand surviving it

 

If they were selling, they wouldnt sell this soon.

 

Its the simple fact that people aren't buying cars or trucks as much as they used to because they don't have enough money. When gas prices are so high it is hard for people to afford gas bills on top of car/truck payments so more people are buying used and more people are buying small domestic and foreign cars that get 28-35mpg. When gas prices go back down, and things get back to being somewhat normal we will see a definite increase in sales. Every company is going through tough times right now even GM. I highly doubt the government will let an American Iconic company like Chrysler go down the drain.

 

Problem is gas prices won't go back down. Chrysler had better adapt to the new market and high efficiency vehicles as the trucks and minivans are going to drag them under. They had better get cars like the Hornet and Demon into the pipeline quick! They had also better get to work on something like the Neon that was replaced by the Caliber (dismal failure). Just when the market is turning towards more fuel efficient CARS they axe the most fuel efficient they have with a crossover-suv whatever the hell that atrocity is. Then you have the NOT AJEEP THING Compass, the Nitro that should have probably been a replacement for the Durango and suffered from a very poor marketing strategy IMO. Whoever were the designers on the Sebring (four door) and the Avenger (yeah, I'll buy a Charger wanna be) should be fired as they completely missed the mark and these are just butt ugly and cheap looking cars. I hope someone comes up with a workable business solution and some effective product because I see Cerberus as Chryslers last chance before it is divided up and sold. They were on a good winning streak from the first gen Ram and LH platform through the 300 but now everything new they come out with is some morphidite-not a car, not a truck, not a station wagon..........what the hell is that thing? The Challenger will not be enough to save them for sure so they'd better get busy quick!

 

I don't think they'll sell...yet, anyway. The analyst seems to be hammering them hard about product mix in this market when none of the top 3 had forseen $4 gas...who did?

I do think they'll wittle down the product line, which they should...IMO

 

its a shame, I would love to buy another dodge but when I get the wife a new car this month it will be something other then a Chrysler product, since I don't haev a need for an ugly, slow car that is nad on fuel economy. It amazes me how badly their design went since just a few years ago... (not including the challenger, which I like)

 

I don't think they will sell for some time. These investment firms don't buy a company to sell off at a loss or close for a write off. They know right from the start that it will take investment in time and money to build up and profit from the deal.[sm=americanasmiley.gif]