Is Chrysler Bankrupt: Yes and No According to CEO Nardelli

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December 21, 2007

In an interview with the Wall Street Journal, Chrysler CEO Robert Nardelli stated he was asked if Chrysler was bankrupt. He went on to say "Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with."

Add to that Chrysler is expected to lose $1.6 billion for 2007, with the company originally expecting to turn a profit in 2008.

Nardelli also expects to raise additional capital by selling assets.

The facts of the matter are, $10 billion dollars is not a lot of money and may not be enough to restructure Chrysler.

Chrysler requires about $5-7 billion of that on hand at any time to keep the business operational. That is dedicated capital used to pay employees, pay for parts and raw materials to build vehicles.

Chrysler also invests in future product and their capital expenditures probably range $3-5 billion a year.

Since, Chrysler is a private company I cannot be sure of their true financial picture.

Nardelli expects to raise capital by selling assets. Personally, I have to question what assets Chrysler has that can quickly be sold to raise money. I also question how much money will that actually bring in. I can argue they may raise a few hundred million to a billion dollars. This is not a significant amount of money.

To put this into perspective, General Motors (GM) has spent $20 - 30 billion dollars over the past few years to restructure their operations through selling significant assets.

Chrysler does not have the depth of assets in their corporate portfolio as GM once did. Even GM is running very thin on assets to sell. They have just concluded another transaction to raise funds by selling their heavy truck operation.

Which leads me to believe that Chrysler will have trouble raising capital by selling assets because their is little to sell. As I have written about before, Cerberus may have to sell their assets to fund Chrysler's future.

With that I have to agree with Nardelli, Chrysler is operationally bankrupt. How much longer until they will be technically bankrupt?


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