Is the End Nigh for Chrysler?

With the U.S. government refusing to put taxpayer capital behind the GM/Chrysler merger (see GM, Chrysler on Hold as Aid Hopes Fade), the question now turns to whether, and how long, Chrysler can survive on its own.

As reported by CNBC:

A deal to merge General Motors and Chrysler has hit an impasse after the Bush administration ruled out funding for it, putting any merger on hold until after the U.S. presidential election, three people with direct knowledge of the talks said on Thursday.

My Comment: Finally a logical response to what would have been a disastrous combination (see GM and Chrysler Near and Agreement, More GM and Chrysler Shenanigans, A Disastrous Deal, and GM + Chrysler = Ugh! for background on my views).

The article continues…

The development adds a new element of uncertainty for the embattled U.S. auto industry as Detroit’s political allies warn the sector faces a deepening financial crisis that threatens tens of thousands of jobs.

It also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with the Nissan-Renault alliance, one of the sources said. The private equity firm had seen the alliance as a backstop to its talks about an outright acquisition of Chrysler by GM one of the sources said.

My comment: I do not see a combination of Nissan-Renault with Chrysler as viable either given Chrysler’s balance sheet. Who in their right mind wants to inherit Chrysler’s problems, …especially in the current environment? To me therefore, the only element of uncertainty that remains is how long Chrysler can survive before it must seek bankruptcy protection.

Look no further than Daimler for evidence that Chrysler is on the precipice. Daimler recently wrote-down the value of its 19.9% stake in Chrysler to zero (see Daimler: Chrysler Stake Now Valued at Zero). After all, who has better information about the value of Chrysler than its former owner? And that former owner is now signaling that Chrysler equity is worthless.

In normal times, Chapter 11 would be an option for a firm in Chrysler’s position. It could continue to operate out of bankruptcy in the hopes of reorganizing the firm and restructuring its debt. However, given the current economic environment, DIP financing from private investors is likely unavailable. This would suggest that a speedy liquidation of Chrysler’s assets might not be too far off.

More on this topic (What's this?)
Chrysler cash drains away as crisis deepens
Chrysler To Slash Workforce By 25%
Read more on Chrysler, General Motors at Wikinvest
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One Response to Is the End Nigh for Chrysler?

  1. Art in Kokomo,IN says:

    I work at KTP Kokomo Indiana. We are the largest automatic transmission factory under one roof in the world. It’s a huge building covering over 80 acres of ground and close to 2 million square feet of floor area. In my close to 16 years with Chrysler I have witnessed a factory buzzing with work slow to nearly a grinding halt. Nearly half of the factory is now unoccupied and some areas are just sitting empty. Much of the machinery is being shipped out as obsolete junk. We only make one or two modern transmissions that are globally atractive economically. I can’t imagine GM or any other company investing any more money in the complex. It would not shock me at all if we were closed here. It’s so sad to see this happen, but I don’t think anyone who makes wise moves finacially, keeps this huge hulk of a building open for just a couple transmissions, when we were designed originally to build 10 or so different types.. We’re all fearful of losing our jobs in Kokomo. It’s been said recently, that powertrain at Chysler would be one of the first things to take a hit. It doesn’t look good for us here.

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