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I told you that Chrysler is doomed



March 31, 2009 – Comments (2)

Around a year ago I decided that Chrysler was doomed (April 3, 2009 see post: Auto Industry Analyst: "current market for light vehicles in the U.S. is about as bad as I have seen it in the past decade." see also: Chrysler is soooooo doomed).  It didn't take a rocket scientist to see this coming, yet a lot of Americans were in denial. 

It's official, Chrysler will no longer operate as a stand-alone automaker.  The only question now is whether it will have to file for bankruptcy before it completes its merger with Fiat.   Bloomberg published an article this morning that leads me to believe that bankruptcy is inevitable: Chrysler, Fiat May Face ‘Impossible Goal’ on Alliance, Savings.  This echoes what I said on the situation yesterday:

For the life of me I can't figure out why Fiat would be in any hurry to merge with Chrysler.  It certainly shouldn't assume any of its debt.  What does Fiat stand to gain by hooking up with Chrysler?  Yes, it would be able to sell Dodge and Jeep trucks in Europe, but the key to this deal for Fiat is gaining the ability to sell its vehicles in the United States.  One has to look no further at the problems that small automakers have had over the years to see that size matters in the auto industry.  It is very difficult for small manufacturers to make it on their own.  Fiat knows this.  That's why they are interested in selling their vehicles in a large market like the U.S.

A merger with Chrysler would provide Fiat with access to a dealer network in U.S. through which it could sell Fiat and Alfa Romeo vehicles.  Let's be honest though, Fiat has been here before with both brands and things didn't work out very well for them.  And Chrysler's dealer network isn't exactly world-class.  Many, many Chrysler, Dodge, Jeep stores are pretty darn run down.  I don't see what the hurry is for Fiat.  What do they stand to lose if Chrysler files for bankruptcy?  Couldn't they just wait until it happens and then pick the bones clean, like what happened to Lehman?  I doubt that there would be tons of bidders beating down the bankruptcy court's door for Chrysler's assets.  To me, the longer Fiat waits to pull the trigger on an alliance with Chrysler, the stronger their bargaining position is.

This sounds a lot like Obama's car czar committee's opinion on Chrysler: “Given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities,” Obama’s task force said.

As someone who works in the industry and who desperately wants America to build a real economy that is centered around actually making things rather than shoveling around other people's money and serving eachother lates, it pains me to say this, but bankruptcy seems inevitable for Chrysler. 

Chrysler is essentially being given away for free to a foreign company, Fiat.  It's funny how bad a deal it turned out to be when Daimler gave this albatross away for free to the private equity guys at Cerberus.  Sure, a government financed, pre-packaged bankruptcy will save some American jobs and Fiat claims that it will build vehicles in the U.S. but giving away American companies to foreign ones is not exactly the path to American prosperity.


2 Comments – Post Your Own

#1) On March 31, 2009 at 7:26 AM, TMFDeej (97.65) wrote:

Darn that spell check:

each other lattés


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#2) On March 31, 2009 at 9:39 AM, oversea (< 20) wrote:

So in the next american police serial we'll have the cops running around in their flashing new Fiat Panda or Fiat 500. Exilarating! Better than Monthy Piton!

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