Chrysler has a new plan to try to work its way through the recession: Convince dealerships to buy cars they don't need.
The Wall Street Journal reports (subscription required) that "Chrysler LLC executives are fanning out across the country to ask dealers to order new cars and trucks as part of an urgent bid to increase revenue following the company's flirtation with financial collapse."
Chrysler is offering bonuses to dealers who agree to take delivery of more inventory. The idea seems to be to pump up the company's sales volume to help secure an additional $3 billion in government loans.
Here's the problem: If dealers order inventory based on pressure to prop up Chrysler's income statement instead of their own estimates of market demand, they'll end up with huge inventories of cars that they can neither sell nor pay for.
What Chrysler is doing here is indistinguishable from good old-fashioned channel stuffing -- a form of what is arguably accounting fraud that involves coaxing customers into taking delivery of more product than they need in an effort to prop up revenue numbers.
But this time the victims won't just be shareholders: They'll be every single taxpayer in America.
Vice Chairman Jim Press recently told investors that "Our company is scrappy."
Drop the "s" and he might be on to something.
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Reader Comments (Page 1 of 1)
1-24-2009 @ 1:02PM
Kent said...
A modified form of "Ponzi Scheme" if you ask me. Dealers are left holding the bag so to speak.
1-24-2009 @ 5:02PM
a_hecht said...
I think your article here is very harsh and prejudicious. Chrysler is only asking its dealers to do what GM , Ford and other Auto firms do.Nobody is forcing anybody to do anything,
Chrysler is a good company that puts out a great product and is trying to get back in the black. Your last sentence was totally out of line.