Is Chrysler Worth Saving? Can Chrysler Survive?

Updated December 12, 2007 Attached pdf

December 11, 2007

It is being reported that Chrysler’s retail sales in the month of November have dropped over 16%. In light of that development I believe the sustainability of Chrysler as a self functioning entity is highly suspect.

Chrysler will sell approximately 1.3 – 1.5 million non-fleet vehicles this year. This is the likely real retail sales range I expect and many of those sales are subsidized with large cash incentives, ranging in the vicinity of $3,000 – $4,000 per transaction. About 95% of Chrysler’s global sales are from North America, specifically the US.

Chrysler retail sales are a sub set of their 2.2 million global sales. I estimate without significant incentives, Chrysler’s real retail sales number is about 1 million vehicles. This would make Chrysler the 15^th largest vehicle manufacturer in the world. This would be down from about 7 or 8.

I believe this paints a dim picture of Chrysler, but this is a realistic view of their relevance in the market. 95% or more of Chrysler’s sales are in North America, with the majority of their sales in the US, as Canada and Mexico are small markets. What happens if or when the US economy slows down because of a recession resulting from the housing mess. It is not likely they can begin exporting hundreds of thousands of vehicles to Europe or China over night to balance the lost volume in the US.

Slowly it is beginning to appear, that to the average person, Chrysler's relevance as a purchase option is exponentially becoming less and less.

Recently, Chrysler has announced another series of layoff and buyouts to better align their manpower to their market share (Retail + Fleet). This also includes news Chrysler plans to cancel a number of vehicle lines including the Chrysler PT Cruiser. Also announced were the temporary shut down of two key plants. Interesting to note  one plant produces the brand new for 2008 minivan.

Back in September of this year, Automotive News reported (subscription required) Chrysler CEO Bob Nardelli stated it will take his team 3 years to shore up the company finances and another 10 years to fix the product portfolio. These statements I believe were made prior to understanding the ramifications of a slow down in the US economy and the significant losses at Cerberus' GMAC financial unit.

Back in July, Automotive New also reported Chrysler's bloated new vehicle dealer network are largely used car dealers that purchase off rental fleet vehicles through Chrysler to fill their showrooms.

Finally, the most troubling report is the recent estimate by Nardelli expecting a $1.6 billion loss in 2007. Since Chrysler now is owned by the private equity firm Cerberus, that estimate is about all they will probably release.

In the end it comes down to the product to change people's perception of Chrysler.

The company just released sketches of their latest concept cars that will make the upcoming auto show circuit. These certainly do not help.

With that I conclude, I am unsure if Chrysler can survive alone if at all. If Nardelli is to be believed, 10 years is a long time to fix the product. I question if Chrysler has 2 or 3 years much less 10. And, if these concept cars are what Chrysler has planned as the basis for the product driven renaissance, I suggest they go back to the drawing board and fast.

As far as, is Chrysler worth saving? I will leave that one for Cerberus to figure out!

Entire contents © 2007 - 2009 The Automotive Lyceum All Rights Reserved