Sometimes, it's hard to determine if major investors are being overly optimistic, outright daffy, or are simply seeing something that the rest of us just don't see. In my view, the current course of events at Chrysler Corp. is one of those difficult to determine situations. On its face, it looks like it could be a case of basic business logic in action. But on closer examination, it just doesn't make sense, at least not to me.
Declaring a payoff horizon of ten years, Cerberus Capital Management has placed a great deal of faith in Chrysler, the American auto manufacturer which is best described these days as an also ran. The kicker is, the Cerberus ten year plan is being initiated at a time when auto industry profitability is near impossible. Consider also the fact that current Chrysler management openly admits that the company isn't in any condition to go it alone.
And there's more trouble in the mix. Cerberus said in a New York Times story that Chrysler is meeting "every financial metric." But Cerberus considers the world's current economic turmoil to be a temporary problem, not the economic world change that it actually is. Meanwhile, Chrysler CEO Bob Nardelli is smiling because Cerberus has given Chrysler lots of money, and he gets to cut heads.
Enter Nissan Motors (NASDAQ: NSANY). With a deal already penned, which will have Nissan Motors manufacturing a small car for Chrysler and Chrysler making a version of its flagship Ram truck under the Nissan brand, one can only surmise that Nardelli is fully prepared to fatally dilute the company's remaining domestic brand loyalty. The plan does have its good points though, most of which will enhance the ability of Nissan to market its manufacturing capacity. But the Nissan deal addresses none of Chrysler's most basic problems, including a notable lack of timely engineering. For example, in order for Chrysler to put a hybrid SUV on the road, the company is required to use components provided by General Motors Corp. (NYSE: GM).
While Chrysler is shopping for manufacturing capacity in other parts of the world, it is at the same time entertaining the attentions of multiple foreign automobile manufacturers here at home. These Chrysler suitors would be pleased to have a partnership which provides further access to the American automobile marketplace. Chrysler seems willing to provide sales space to foreign makes in exchange for sales connections abroad. In an ideal world, this scenario might be helpful for all involved. In Chrysler's weak condition, however, these kinds of deals may play out similar to letting the raccoons into the house because you don't want them under the porch. If Chrysler has fallen so terribly behind the engineering curve within a market as patient as our own, how can it expect to survive globally as a domestic host to aggressive competitors?
Chrysler's current manufacturing and marketing plan will probably play out well for Nissan. However, I fear that it may not play out so well for either Chrysler or Cerberus. In fact, I have serious doubts that Chrysler can continue to even survive unless Bob Nardelli is kept seriously in check. Otherwise, the Chrysler ten year horizon may not turn out to be the time frame for return on Cerberus capital investment. In the future, it may more aptly be referred to as the six sigma window that Chrysler jumped from to its death.
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Reader Comments (Page 1 of 1)
8-28-2008 @ 12:23AM
John Konieczny said...
A few observations:
1. Chrysler should have never merged with Daimler-Bens. Lee Iacoca was right.
2. Chrysler has a modern engineering center in Detroit. Use it. Build lighter more fuel efficient vehicles. Develope electric vehicles.
The Dodge 'Dakota MPG Special'. Plastic wheels.
No wasted space.
No Spare. Fiberglass truck bed that will not ever rust. Your choice of style curves or square. A state of the art fuel injected 4 or 6 cylinder.
An efficient 'Mazda' rotary engine. An electic hybrid that can get around town for 100 miles.
A drop in battery pack for more mileage. A change of batteries like in a DeWalt drill. Unplug one set int the pick-bed and slide the charged set in.
Vehicles that continually use less and less fuel.
Until they use none. How did they power the moon vehicle. Try the Tesla funning gear
3. The 'Indianapolis 500' for electric cars, and hydrogen and fuel cell vehicles.
4. Special 'patents' for anybody who can raise fuel mileage.
5. AND all these American boys that have been 'Hot Rodding' forever working on Miles per Gallon.
8-28-2008 @ 12:24AM
Rick Michigan said...
This is a very interesting article but you make statements where you fail to explain why your point is valid, for instance:
"in order for Chrysler to put a hybrid SUV on the road, the company is required to use components provided by General Motors Corp. (NYSE: GM)."
Why would you imply that this is "bad"? In fact (I think it was publicized that) Chrysler joined forces several years ago to work on a "fast-track" hybrid program with GM and these components are a result of this. In the past it was much publicized that the "big 3" wasted big bucks on designing their own parts when they could have easily bought the item from someone else (including a competitor) at a savings. The "not invented here" thinking is a thing of the past as a result of tight money and enlightened management.
I'm not a big fan of Bob Nardelli but you seem to really have a dislike of the guy. I.e., you imply that he likes to layoff people....and say he needs to be kept in check. Maybe he does but I'm not sure how you now that.
Finally, I've never known the American car market to be one that is patient. And, I'm not sure how you seem to connect their presumed financial problems to engineering (behind the curve) problem. Today's quality (if this is what you are implying) is certainly not the main driver for Chrysler's current situation. If anything their problems stem from poor planning and marketing decisions (that drive engineering) made by (past and perhaps present) management. An article pointing out these decisions would be interesting.
8-28-2008 @ 12:21PM
Marc said...
What kind of question is that? Did no one pay attention to what Bob Nardelli did to Home Depot? He single-handedly sunk it into the doldrums that it is in right now; he took a cash cow and slaughtered it and fed it to the vultures. All, of course, before getting massively and unreasonably compensated for his incompetence. It is the American model of business leadership; use a company to siphon off unearned wealth competent or not. Once you are in the boys club, it is your duty to drain as much shareholder equity as possible. How can you fail to epically and still get hired by anyone, anyone! He should be flipping burgers or something he can actually accomplish. But if he were a commoner, pulling the stuff he does, he would be indicted for fraud and theft.
What a better match than a private equity, leveraged buyout firm for this bucket of puss! Nardelli and the Cerberus will and probably have already drained millions out of the company (I dare not even look).
Seriously people.... the company calls themselves Cerberus, the hellhound that guards the gates to Hades. No living company may pass their paths!
Sometimes I wish people were able to connect at least two dots.
8-28-2008 @ 8:00PM
al coholic said...
John in comment #2.....
Can't argue with anything you said. Someone should send your comment to Nardelli!
8-31-2008 @ 12:25PM
Phil said...
WELL GARY I GUESS YOU DON'T HAVE A VIEW ? AND DON'T KNOW THE AMERICAN AUTO INDUSTRIES ! IT IS WAY SMARTER TO SPEND LESS MONEY ON R&D WHEN YOU CAN SPEND ONLY HALF THE AMMT ON A JOINT VENTURE! WITH THE SAME END ! BUT LIKE WALL STREET THE CODE WORDS ARE NOT THERE . LIKE WHEN WALL STREET BANKS LOSE MONEY THEY CALL IT A WRITEDOWN ? OR WHEN THE DOW HAS A LOSS ITS CALLED A CORRECTION? WHILE YOU AND THE SO CALLED ANAL-YST BARK DO YOU THINK A THAT ALOT OF PEOPLE BUY WHAT YOU SAY ? lol WELL CHRYSLER IS A PRIVATE COMPANY , AND WALL STREET HATES PRIVATE COMPANIES BECAUSE THEY CAN'T PUT THEIR GREEDY HANDS INTO THE COMPANY ! THE REAL STORY SHOULD BE THAT AMERICAN AUTO COMPANIES IN GENERAL CAN'T BORROW NO MONEY FROM BANKS NOW BECAUSE THEY ARE TO BEAT DOWN BY THE SUB PRIME MESS ! TO DO WHAT BANKS ARE MENT TO DO LEND MONEY! SOME PEOPLE WOULD SAY THAT GIVING LOANS TO DETROIT IS A BAD RISK lol lol WELL SEEING THE BANKRUPT BANKS ON WALL STREET AND THIS ENRON MARKET WE CALL THE DOW ! I GUESS WHEN THE BANKS WERE GIVING A MORTGAGE WITH NO CREDIT CKs OR EMPLOYMENT CKs AND NO SOC SEC #'s LOL YA I SEE WHY WALL STREET BANKS ARE BROKE ! OH YA HOW MANY WELFARE BAILOUTS HAS THE FEDS GIVEN WALL STREET! lol ...