It is time to be very afraid. Capitalism has been twisted into a Gordian knot. The outlook for success is not good and there may be a Draconian twist at the end.
Yesterday, Chrysler Corp. filed for Chapter 11 bankruptcy, checking the appropriate boxes for 'over $1 billion' in Estimated Liabilities and 'over 100,000' Estimated Number of Creditors. The filing is one thing; the hype is something else entirely.
The Obama has spoken. The New New Chrysler, owned by the UAW, the government and Fiat, will produce a new generation of vehicles, apparently small Fiats. The government will provide $8 billion in government loans as seed capital. Cars will be financed by that nationalized bank known as GMAC. (You can't make this stuff up.) John Hinderaker has called these maneuvers 'Banana Republic Capitalism.'
Poor Ford. During his announcement, Obama kept talking-up Chrysler and GM, two companies in which the government has major equity stakes. Notably absent was any thumbs-up for Ford, the automaker who didn't go running to the gummint for bailout bucks. Not only does Ford now have to negotiate its labor deals with a competitor but it also has to compete with the Cheerleader-In-Chief.
In 2008, the old Chrysler (aka - New Chrysler) lost $8 billion producing 1.45 million vehicles - over $5,500 per vehicle. How this company will now develop vehicles so good that it can raise prices by $6,000 or so remains to be seen.
I don't think it can be done.
Chrysler is estimated to have $35 billion in revenue in '09. If true, the firm would not be among the top seventy companies in the Fortune 500; its 2009 sales may be less than Apple's. With 54,000 employees, Chrysler now has fewer workers than Cisco. Chrysler is a pale shadow of its old self.
Obama hopes that the liaison with Fiat will produce better cars. Fiats are expected to arrive at the (substantially) reduced number of Chrysler/Dodge/Jeep dealers sometime in 2011.
Fiats are neither assembled nor sold in North America at this time. Fiat Auto is the largest vehicle manufacturer in Italy and has a substantial manufacturing presence in Brazil. It has smaller operations - many of them joint ventures - in Russia, Serbia, Poland, Turkey and some developing countries. Fiat has had decades of financial, product and managerial problems; in 2000, the Fiat family had to relinquish some control to GM just to survive. S&P rates Fiat as junk.
Fiats have a reputation in Europe for marginal quality. Jeremy Clarkson of Top Gear has remarked, "Italian cars were always a bit like Italian tempers. Easily broken." And: "Let's not forget that in the Top Gear customer satisfaction survey, Honda won and Fiat didn't. By a long way." The Fiat Panda he tested "had issues with noise, vibration and harshness. ... The engine gave me a headache, and because it's pretty loud I had to turn the stereo up and that made my headache worse."
On the best-selling, ItalDesign-styled Fiat Grande Punto super-mini global car: "The electric power steering is too sharp and the brakes too snatchy. It's hard to make it flow. And the clutch bite is so sudden I did stall a lot too. Other problems? Well, the stereo system couldn't receive Radio 2, the seatbelt warning beep was loud enough to shatter wine glasses, and if you put a can of drink in the cupholders and go round a corner it falls over."
Clarkson called the Fiat Quobo "a danger to society." "Trying to break the speed limit in this car would be like trying to break the speed limit while riding a cow." He also noted that the car featured "a gearlever that feels as sturdy as one of Bugs Bunny's ears." He wrote that the Fiat Multipla was "the first car to resemble an Amazonian tree frog." The current model is "the most boring looking machine in the whole of human history. I've seen more exciting cardboard boxes."
This is why, in Europe, Fiat is losing market share to Japanese - and lately, Korean - offerings.
Americans overwhelmingly buy mid-size cars (Accord, Camry, Altima, Fusion, Malibu, Sebring), typically 190 inches long. Chrysler needs something to replace its woeful Sebring; Fiat does not make a mid-sized, moderately priced car. The Italian firm's expertise is in less-than-170-inch-long minicars.
The popular compact budget models (Civic, Corolla, Fusion, Cobalt, etc.) are about 180 inches in length. Fiat has nothing to offer in that size range except expensive (and therefore, uncompetitive) Alfas and Lancias.
The cute Fiat 500 may appeal to some but it is really small - 6 inches shorter than a BMW Mini. Small cars didn't save Chrysler the last time around. The Rabbit-sized Dodge Omni/Plymouth Horizon models were handily outsold by the larger Dodge Aries/Plymouth Reliant K-cars by almost 2 to 1 in 1981.
Japanese automakers became successful in America because they learned to incorporate features which Americans demand in their vehicles: powerful air-conditioners, smooth & reliable automatic transmissions, good audio systems, foolproof power windows and cushy, supportive seats for the obese. Fiat doesn't have a good track record in any of these areas. In Europe, manual transmission-equipped cars account for 80-90% of all sales, depending on the country.
Henry Payne, who writes for National Review Online and is editorial cartoonist for The Detroit News, has noted, "Chrysler will also be one-tenth owned by the feds, meaning that a private, for-profit company will be majority-held by two entities whose priorities are not making cars at a profit but saving union jobs and expanding the web of regulation. Former American Motors president Gerald Meyers told WJR-Radio after Obama's announcement that union/government ownership of an auto company amounted to 'a grand social experiment.' Would it work? 'No,' he answered.
Obama's plan also amounts to a grand experiment in bankruptcy filings. Never before has a major company entered Chapter 11 with the full backing of the U.S. government. That means the Treasury will guarantee Chrysler product warranties and supplier contracts. It also means that the White House will put enormous pressure on the court to get the outcome it wants."
And that's the scary part. Imagine Obama, faced with a yardload of small cars which no one wants to buy - made by the New New Chrysler and the federalized General Motors. It is not hard to imagine him pushing a huge gas tax bill (proceeds used to build windmills and the like) through a Democratically-controlled Congress.
Oh boy - $7.00 per gallon gas prices ought to get America interested in those little Chrysler Fiats and Chevy Cruzes. While destroying the rest of the economy.
Frightening. (posted 5/1/09, permalink)
May 18, 2009 Update: Chrysler may die of neglect because there is no one to 'champion' it. I don't mean cheerleading. I'm talking about someone to step up and finesse the suppliers, play good cop/bad cop with opponents, cheer up the remaining disheartened dealers and inspire the long-suffering lower management and technical employees. These tasks must be undertaken if Chrysler is to stay alive.
That's what Lee Iacocca did almost 30 years ago. But he's long-gone from Chrysler and, at 86 years-old, ain't comin' back. Today's senior execs aren't interested; they're too busy trying to get around the bankruptcy salary cap rules, floating their resumes and making contacts in preparation for post-Chrysler futures.
Fiat is standing by - uncommitted, waiting to see if the bones of the Chrysler wreckage are worth picking. Fiat CEO Sergio Marchionne will allegedly be the new chief executive of the New New Chrysler but he is spending no time making encouraging comments to the press or interested parties. He remains disengaged, afraid that he'll be asked to put his (Fiat's) money where is mouth is. He wants "nothing-a-down, nothing-a-month. Capisce?"
Meanwhile, Renault-Nissan's Carlos Ghosn is waiting offstage, waiting to see if the Fiat 'deal' collapses. The Chinese are watching silently, on the lookout for Super Cheap Leftover Foolish American Bargains.
The bankruptcy court does not have 'champion' in its job description. It is busy doing its job, trying to sort out and dispose of the untidy remnants of Walter P's once-mighty empire. Despite Obama's wishes, the court - as the U.S. Constitution sets forth in defining Separation of Powers - will do what it deems necessary, even if that means a Chapter 7 liquidation. And that may well happen.
In the meantime, the remaining Chrysler-Jeep-Dodge dealers have to try to stay afloat while competing with terminated dealers' Everything-Must-Go fire sales. All the while realizing that there may be no future for them anyway; vehicle production has ceased and product development is stalled or non-existent.
Where will the surviving dealers get much-needed operational financing to carry them through this difficult period? Local banks? Noooooo. Banks are running scared, haunted by the risky, foolish real estate loans they've made in the recent past. They've now made credit tighter than the sphincter of an Ex-Lax abuser with a hacking cough.
Few, if any banks are crazy enough to underwrite a brand-damaged (therefore high-risk) auto store. In fact, would anyone at a local bank be nuts enough to buy a new Jeep, Chrysler or Dodge? Or even finance one - absent a Rosie-O'Donnell-hefty down payment? (posted 5/19/09, permalink)
Excuse Me While I Laugh: Chrysler brand CEO Peter Fong sees his brand being "a notch above Lincoln, a notch above Cadillac" in the future. I suspect that would be in the very far, Nostradamussy future. Chrysler hasn't been the equal of Cadillac since the early 1930s, if then. (I have a picture in my head of a LeBaron-bodied 1933 Chrysler Imperial Eight phaeton.)
When I was growing up in the 1950s, Chrysler was a mid-priced brand. That's why Chrysler Corporation broke out Imperial as a separate nameplate, although the Imperial brand never quite carried the cachet of Cadillac or Lincoln.
Everybody knows that, when Plymouth was killed, Chrysler became the New Plymouth. Witness the Chrysler PT Cruiser which was supposed to be a Plymouth model. In Europe, the Neon carried Chrysler badges and was considered a joke brand. In the U.S., it's now a commodity minivan-for-mommy brand. Or rental car fodder.
I would peg the reemergence of Chrysler as a true luxury brand at several decades after the last Sebring owner passes away. (posted 9/23/09, permalink)
Pentastar Mess: Douglas A. McIntyre has written that Chrysler may not make it another year, due to its tumbling sales and growing financial losses at partner Fiat.
Chrysler only sold 62,197 cars in September - down 42% from the same month last year. Chrysler is being handily outsold by GM, Toyota, Ford and Honda. Nissan and Hyundai are nipping at Chrysler's heels. The only five-digit monthly seller at Chrysler is the Dodge Ram pickup - Chrysler's only model in the top 20 vehicles by sales volume. 13,452 Rams were sold in September, compared with 33,877 Ford F-Series.
I was pessimistic about Chrysler's survival when it first filed for that bizarre banana-republic bankruptcy, which I now refer to as Obamaruptcy. And the subsequent shotgun marriage to Fiat - a nuptial which only made sense after a lot of drinking or a severe head injury.
But - drunk or brain-damaged - you and I are on the hook for Chrysler, since we have become Involuntary Stockholders. The $14.3 billion we taxpayers put into Chrysler is more and more likely to be lost completely. Getting our money back is as probable as winching a '58 Crown Imperial limo out of a tar pit which has been declared a National Historic Site.
McIntyre concluded, "Chrysler is going out of business. The company just hasn't made it official." (posted 10/5/09, permalink)
Tow Truck Operators Rejoice! The Wall Street Journal has reported, "Four months after exiting bankruptcy, Chrysler Group LLC is about to unveil a product road map that relies heavily on vehicles from Italian partner Fiat SpA while abandoning many of the U.S. car maker's own models." The article noted that "the majority of the Dodge and Chrysler lineups will be reworked atop Fiat platforms, save the rear-wheel drive architecture of the Dodge Charger/Challenger and Chrysler 300."
Six months ago, I wrote that Americans overwhelmingly buy mid-size cars (Accord, Camry, Altima, Fusion, Malibu, Sebring), typically 190 inches long. Chrysler needs something to replace its woeful Sebring; Fiat does not make a mid-sized, moderately priced car. The Italian firm's expertise is in less-than-170-inch-long minicars.
The popular compact budget models (Civic, Corolla, Fusion, Cobalt, etc.) are about 180 inches in length. Fiat has nothing to offer in that size range except expensive (and therefore, uncompetitive) Alfas and Lancias.
The cute Fiat 500 may appeal to some but it is really small - 6 inches shorter than a BMW Mini. Small cars didn't save Chrysler the last time around. The Rabbit-sized Dodge Omni/Plymouth Horizon models were handily outsold by the larger Dodge Aries/Plymouth Reliant K-cars by almost 2 to 1 in 1981.
Japanese automakers became successful in America because they learned to incorporate features which Americans demand in their vehicles: powerful air-conditioners, smooth & reliable automatic transmissions, good audio systems, foolproof power windows and cushy, supportive seats for the obese. Fiat doesn't have a good track record in any of these areas. In Europe, manual transmission-equipped cars account for 80-90% of all sales, depending on the country.
The old Chrysler is dead. So is the new Chrysler but no one wants to admit it. (posted 10/28/09, permalink)
Dakota Dog: Much is being written about the revival of Chrysler these days. But reliability and quality remain a gamble.
The most recent data from Consumer Reports lists Chrysler as the lowest-ranked manufacturer in the survey. "We can recommend only one of its vehicles, the four wheel-drive Dodge Ram 1500," the magazine report said.
My very good friend and fellow car nut Ray purchased a new '05 Dodge Dakota ST Club Cab with V6 engine in November 2005. The Dakota had been redesigned for the '05 model year but still shared its platform with the Durango SUV.
An ominous sign of cost-cutters at work within Chrysler was the fact that this "new generation model also reverted the wheels back to five lug wheels from the prior generation's six lug wheels due to cost and assembly time saving measures," according to Edmunds.com.
All went fairly well with Ray's red truck until November 2009 when the transmission died at 32,826 miles. Luckily, most of the cost was covered by Dodge's 7 year/70,000 mile guarantee.
A few months later, he found that the Dakota was leaking transmission oil. The Dodge dealer found a leak from one of the lines to the transmission cooler. Ray wrote, "On questioning, I found out these lines are crimped together, not compression fittings, and leakage is common. I could barely contain myself.
I've had Tow Packages on all but one truck I've owned. Never any leaks, ever. The only transmission failures have been on my two Chrysler T&Cs, and now on my Dakota. I was upset. I asked if when the transmission was repaired, did the Technician check the transmission cooler?"
No one seemed to know. Replacement parts had to be ordered; Ray's truck was out of service for over a week.
"I have it on good authority that the only Federal/State prohibitions against "crimped connections" are when brake lines are involved." One his uncles, who had worked for the U.S. Army in vehicle maintenance, said that the army "will not tolerate any crimped connections on their vehicles."
Ray has told me that he is "done" with Chrysler products, regardless of who owns the company.
There are many thousands of stories like Ray's. Even if Chrysler starts making stellar vehicles next week, it will take years to restore its stinking reputation. (posted 12/10/10, permalink)
Modello Eccellente? No. Fiat would have us believe that its 500 minicar is as stylish as Italian supermodel Bianca Balti. U.S. sales of the tiny auto indicate that Americans perceive the little Fiat as more like Ugly Betty.
Automotive News has reported that "Chrysler Group has suspended production of its 1.4-liter engine that powers the Fiat 500 in North America due to slow U.S. sales of the subcompact, according to "a top UAW local official." Internal Chrysler documents show that the Italian-owned automaker has a 184-day supply of Fiat 500 coupes and cabrios available to dealers."
Over at TTAC, Ed Niedermeyer has quipped "in the US market, the 500 will be little more than an overpriced fashion accessory."
I've yet to see a Fiat 500 on the roads around here. Yet, Fiat-Chrysler CEO Sergio Marchionne stated that the 500 would "transform the U.S. market" and that the automaker would easily sell 50,000 units in the first year. Hmmmm. Year to date sales: 15,826 units. I'm not expecting the Abarth model to change things. It isn't competitive with the many performance variations of the BMW Mini.
Fiat - the company - is also in trouble at home. Automotive News has also reported that "sales in Italy this year are spiraling down to a 15-year low. Fiat's Alfa Romeo, Fiat and Lancia brands compound the market's weakness with aging products. Fiat sales and market share will continue to erode." The situation is exacerbated by Europe's faltering economy, and the sovereign debt and Euro crises.
I wonder: How much of U.S. taxpayer's Chrysler bailout money is being used to prop up the hideous wreckage known as Fiat? (posted 11/17/11, permalink)
