Could It Be a Happy New Year for Chrysler?

Yesterday the Bush Administration came through with TARP funds for the auto industry (intended to prevent a “disorderly bankruptcy”), just as Chrysler closes its last day of production for at least a month. Now we have to hope that despite the bad timing of the plant shutdowns (coming just before the holidays), that 2009 will be a happier year for Chrysler and the rest of the Detroit auto industry. Of course, I have more personal reasons for hoping so, but if this federal assistance is given and received intelligently, I believe that it will help make the entire country (entire economy) happier in 2009.

The Detroit Free Press’ Mark Phelan seems to have the right ideas when it comes to how the automakers can intelligently respond to this aid package and prove themselves to the rest of the American public (note that the Free Press continues to avoid the term “bailout”–in contrast to the DC papers):

The $17.4-billion lifeline the federal government threw today is the best chance General Motors Corp., Chrysler LLC and Ford Motor Co. will ever have to regain the American people’s trust and reshape their business models for long-term profit and success.

First and foremost, they must get the vehicles right. Every new model they introduce must be a fuel-efficiency leader for its class.

Second, they must build great small cars. Cars that don’t just match, but exceed, the quality, fuel economy and flair of models like the Honda Civic, Nissan Versa and Mini Cooper. Then they must demonstrate that 40 m.p.g midsize sedans and 50 m.p.g. subcompacts are just around the corner, and that when they come into view, they’ll be gorgeous.

To win back American buyers’ respect, the automakers must show the aid package was a sound investment, not a handout…

In the case of Chyrsler, Mark Phelan explains it’s not so easy to follow the “build great small cars” directive, but they can still respond intelligently:

Chrysler faces the toughest task. It doesn’t have the technology and resources to produce small, technically advanced vehicles like those coming from GM and Ford. Chrysler will offer the quirky and efficient little Dodge Hornet, but that car was engineered and produced by Nissan in Japan.

The Hornet may have the looks and features to please buyers, but it won’t make the case that the aid supported American technology and manufacturing.

Chrysler must use the breathing room the loans provide either to form more alliances with other companies, or – as appears more likely – find a buyer or partner that will provide the technology for small vehicles and let Chrysler develop and build the models it does superbly: minivans, Jeeps, the Chrysler 300 and Dodge Charger and Ram…

Yep, the smart response is for the auto industry to immediately “downsize” and “streamline” to produce only the vehicles that people apparently want to buy (and not a single SUV or large sedan more), while figuring out (with unusual-for-Detroit foresight) how to “transform” to the industry that will be able to produce the vehicles that we expect people will want to buy in the future. I think it’s a good time for us all to be hopeful.

And speaking of hope and gratitude and good sentiment in general, here’s a little “thank you note” from Detroit to the President, written by the Free Press’ Tom Walsh:

Detroit says thank you, Mr. President.

And a Merry Christmas and Happy New Year to you, too.

President’s George W. Bush’s 9 a.m. holiday gift basket for Detroit automakers was $17.4 billion in short-term bridge loans to help General Motors Corp. and Chrysler LLC survive to see 2009.

The gift basket comes with lots of stern words about concessions, viability plans and possible bankruptcy in the future. But there’s little in the way of enforcement mechanisms. It will be up to the incoming Obama administration to set the strict terms and timetable for the profound changes to come for Detroit’s automakers, workers, suppliers, dealers and debtors.

This is not cause for wild celebration of the party-like-it’s-1999 variety.

Rather, it’s an occasion for thanks and relief that GM and Chrysler will still be around to slog through the messy, difficult times that 2009 will bring.

And for now, that’s good enough.

Whew!

So I am hopeful for a Happy (or at least happier) New Year for Chrysler and the rest of the Detroit auto industry. And I have a lot more optimism today than I did yesterday that in the New Year I’ll get to tour that Chrysler truck plant after all.

Comments

[M. Lewter:]

While your insightful commentary provided some very good points, it seems you have left out a healthy dose of the positives coming from Detroit. Ford has taken (for the past several years) steps to reduce its workforce, develop/introduce new models that the buying publics LIKES, and all the while bring the level of quality up to and then past Toyota and Honda. Alan Mullaly and his team only asked for a line of credit (in case of failure of Chrysler or GM). They ARE accomplishing (and have been) what should have been done all along by the other two maunfacturers.

From those of us who make a living in an industry that is struggling, please try to bring the good news with the bad. The dealer network in the United States is working to maintain the jobs and community responsibility we have maintained for years. Every negative word that streams from the press that does not include the positives only hurts every manufacturer, dealership, community, and person who works hard everyday to make our businesses successful. Commentary or not - the readers of this world would like to see fair and balanced reporting.

Happy Holidays to all and here is to a great New Year and a bright future for the American Automobile industry!

2008 Dec 20 07:42 PM

[devich:]

Only problem is they make such little profit on the smaller cars, and much more on the larger vehicles. Giving up the larger vehicles transfers a huge advantage to the competition.

2008 Dec 20 09:33 PM

[wildbongos:]

"Could It Be a Happy New Year for Chrysler?" You bet! They just got the American taxpayer to pick up the tab for paying their union employees not to work for a month or two. This is money that Chrysler/Cerberus would otherwise be legally on the hook to pay. We will never see that money again. We might as well have written the check personally to Dan Quayle. Cerberus is not in the business of losing money, and they never invest in R&D. When this money runs out, Chrysler will once again come begging, and if denied they will simply close the doors and Cerberus will sell it off to some insider who will come begging to Obama to fund the purchase.

2008 Dec 21 01:06 AM

[geo511:]

The big 3 are now joined at the hip with Congress I think that's gonna make they're year pretty lousy. Think about all the inane shouting matches the CEOs are going to have to have with Barny Frank.

I like my cars big so making more Focuses and Volts just mean I'll be buying foreign next time.

2008 Dec 21 07:34 AM

[derryl:]

How can the Big 3 become profitably cost competitive in small cars against foreign competitors who don't have to pay Big 3-style legacy costs? Somebody recently pointed out that when public and corporate pension and health care plans were conceived, the financing was based on baby boom pyramid shaped demographics, and people retiring at age 65 and dying at age 66. Now the demographic pyramid is inverted, and people live into their 80s and 90s. The legacy costs are financially unsupportable. This is the bathwater that is drowning the baby.

2008 Dec 21 08:16 AM

[burnout:]

Since the 80's GM has made a fuel efficient large cars. The Buick LaSabre (followed by the LaCross and Lucerne) and Chevy Impala got 30+ MPG and had good crash and quality ratings. Yet Americans choose to buy from foreign manufactures.
Let's not put all the blame on Detroit.
Also devich, is it not better to make just $1.00 a day, continue to pay your workers and suppliers, than to lose $10,000,000 a day?
Let's get going in the right direction, support Detroit IF they follow through with promised changes, and let the stockholders worry about big profits a couple of years from now.

2008 Dec 21 08:18 AM

[B12B:]

Would it not be a good idea for Detroit to recognize that the greater failure lies in their basic methodology of selling products: Creating a product that, inappropriately, represents an image of sex appeal, that, inappropriately exudes hallmarks of power>>excessive size, power, consumption<< and alludes to the uniqueness of the individual to whom it is marketed, the one who forges a lone path through empty deserts to a mountain top, singularly conquering the world!
And once having created this 'inappropriate' product, using the worlds most advanced marketing technology to brainwash the populus into having these inappropriate desires!
If the vision would be "the community" and the recognition to be the needs of this community, maybe the products created would become more appropriate.
Detroit is stuck with an infantile vision of automobiles, what those automobiles should be all about. Detroit, I hope for them, will survive only if they mature and begin to use responsibility to the COMMUNITY as their basic premise and discard the only responsibility embedded in their modus operandus: responsibility to the STOCKHOLDERS. If they manage to make such a transformation not only will they survive, they will thrive!

2008 Dec 21 08:44 AM

[axelrod608:]

Wishful thinking does not make unsustainable companies viable. The "Big 3" either fundamentally restructure or become permanemt recipients of corporate welfare.

Our national resouces would be far more wisely spent creating a universal health care system modeled on the Natiional Health Service Corps + local clinics that would relieve the burden of our corporations having to make insurance companies rich while providing employees and retirees health care.

Our national priority should be to provide health care, not insurance.

2008 Dec 21 09:17 AM

[Auto Lover:]

Why do you guys always want to include Ford in you commentary as if they are on the same playing field with Chysler and GM?? Ford has not asked for any money and have only asked for a "line of credit" should there be a GM or Chrysler bankruptcy that throw the markets into a turmoil.

Give credit where it's due. Ford made money in the first quarter of THIS YEAR and was on its way to profitability when they, and everybody else, including Honda and Toyota, got blind sided by $4/gal gasoline that turned the market around overnight. Couple that with the financial crisis and there aren't many, if any automakers doing well at the moment.

Also, Ford has a stable of beautiful, fuel efficient small cars that are being produced in Europe as we speak. They are in the process, and were in the process, of retooling their US plants to produce those vehicles here. They'll all be here in 2010 and this bodes well for Ford's future barring any prolonged downward spiral in the economy. If that happens, all producers will suffer.

One other thing everyone needs to remember is that once the manufacturers get production in line with demand, vehicles are going to become more expensive. THe days of rebates (of any significance) and bargain basement deals are over. If the Big One (GM) and Little One (Chrysler) go under, be prepared for even higher prices. For those of you out there that are so adamant that we let the US makes "go under", be careful what you wish for............you might just get it!!

2008 Dec 21 09:30 AM

[Dave Wrixon:]

Well that just about says it all.

Nobody in Europe would consider 30mpg fuel efficient.

Hell, my Landcruiser did more than that!


On Dec 21 08:18 AM burnout wrote:

> Since the 80's GM has made a fuel efficient large cars. The Buick
> LaSabre (followed by the LaCross and Lucerne) and Chevy Impala got
> 30+ MPG and had good crash and quality ratings. Yet Americans choose
> to buy from foreign manufactures.
> Let's not put all the blame on Detroit.
> Also devich, is it not better to make just $1.00 a day, continue
> to pay your workers and suppliers, than to lose $10,000,000 a day?
>
> Let's get going in the right direction, support Detroit IF they follow
> through with promised changes, and let the stockholders worry about
> big profits a couple of years from now.

2008 Dec 21 09:54 AM

[dw57:]

well if Chrysler laid them off, we were going to pay them anyway. as it is, Chrysler pays them for 2 weeks, and we pay them the remaining time. it seems that extra time is without pay, and they can file for unemployment since they will be at that time.


On Dec 21 01:06 AM wildbongos wrote:

> "Could It Be a Happy New Year for Chrysler?" You bet! They just
> got the American taxpayer to pick up the tab for paying their union
> employees not to work for a month or two. This is money that Chrysler/Cerberus
> would otherwise be legally on the hook to pay. We will never see
> that money again. We might as well have written the check personally
> to Dan Quayle. Cerberus is not in the business of losing money,
> and they never invest in R&amp;D. When this money runs out, Chrysler
> will once again come begging, and if denied they will simply close
> the doors and Cerberus will sell it off to some insider who will
> come begging to Obama to fund the purchase.

2008 Dec 21 10:03 AM

[dw57:]

well the average life expectancy today is 70s, not much up from 66. but more folks are lasting longer. but we can fix that. we just down grade our standard of living (which is in progress) and viola! problem solved. and you don't have to worry about needing your 401k either!


On Dec 21 08:16 AM derryl wrote:

> How can the Big 3 become profitably cost competitive in small cars
> against foreign competitors who don't have to pay Big 3-style legacy
> costs? Somebody recently pointed out that when public and corporate
> pension and health care plans were conceived, the financing was based
> on baby boom pyramid shaped demographics, and people retiring at
> age 65 and dying at age 66. Now the demographic pyramid is inverted,
> and people live into their 80s and 90s. The legacy costs are financially
> unsupportable. This is the bathwater that is drowning the baby.

2008 Dec 21 10:06 AM

[buyitcheap:]

Obama administration's first act should be to put in an order for one million natural gas powered vehicles and convert the entire federal fleet including noncombat vehicles over to NG fuel.

That would spur massive production and upgrades and wean us off oil.

It is clean and it works.

I'd love to hear Obama's nuclear power plan and reprocessing of uranium on site like the (ugh) French do but I have a feeling the kneejerk anti-nuke crowd will stop it.

2008 Dec 21 10:25 AM

[burnout:]

Dave your Landcruser might get 30 down hill with a tailwind.
Last time I checked it did not come from Europe either.
I am talking about full size cars. Not a VW diesel that weighs 2200 pounds and holds 3 people uncomfortably.
Let's compare apples to apples shall we.
Besides, my point was about people like you that don't buy Detroit's better offerings. Just keep sending your money and our jobs overseas and I'll meet you in the bread line.

I also made comment a year ago asking the question..."Why can you only get a CNG vehicle on the west coast". I know there are very few places to get the fuel in the other regions of the country but anyone with NG in there home can put their own fuel station there for a few thousand dollars and the payback is not very long in coming. The range exceeds the proposed plugins, so unless you are traveling cross country that is not an issue. It could be a good bridge to new technology.
I'm sure it would make Dave happy too since as it stands today the only CNG cars you can buy are foreign. Detroit has really dropped the ball in this respect.

2008 Dec 21 11:25 AM

[John Lounsbury:]

Interesting article and even more interesting comments.

derryl and axelrod - - -

You are both making good points about addressing the legacy costs. If the Big 3 (or eventually 2?) are to make it, these must be addressed. Not only the companies, but also the unions, retirees and (gasp!) the government must be parties to working this out. I believe it will be done.

As axelrod implies, the broken and inefficient health care system is contributing to our manufacturing non-competitiveness versus the rest of the world. I have read that the overhead to healthcare because of insurance inefficiency is about 15%, inadequate record systems about 10%, inappropriate litigation about 7-8% and inappropriate application of facilities (like emergency room visits by the uninsured for office call diagnosis and treatment) about 7-8%. (I apologize for using personal memory not backed with a reference.) The total of all these (if accurate estimates) is about 40% of our healthcare dollars going to waste (unless you are employed by an insurance company or collecting dividends on insarance stock).

dw57 - - -

You have seriously underestimated the life expectancy of today. You say 70s. According to the IRS tables, the unisex life expectancy at 70 is 17 years. This is slightly more than the male life expectancy and slightly less than the female life expectancy. For a couple one 70 and the other 60, the survivor life expectancy of the couple (the time for the last to die) is more than 27 years. Obviously, if one is 65 when the other is 70 the other 65, joint and survivor life expectancy will be in between , maybe 21 or 22 years.

The legacy problem is worse than you estimate, dw57.

2008 Dec 21 11:35 AM

[long_on_oil:]

One major thing has happened now that we have not coped with in the past and that is gasoline prices that rise and fall like the Missouri temperature. The auto companies are faced with the daunting task of building autos for the times we live in. You can bet if gas stays below $2 a gallon you won't be able to give away those little cars and forget alternate energy. Give me an SUV any day compared to a Toyota prias or Honda civic but if gas hits $4 a gallon my butt would be very comfortable in a Honda civic.
It is very easy to say what we would all do for the auto companies but the root of the problem is sales...no sales = no profit = eventual bankruptcy no matter how much money is thrown at the company.
Personally, I would hate to be an auto executive faced with todays energy volatility.

2008 Dec 21 12:14 PM

[sourceview:]

Cerebus/Chrysler should not have gotten a damn dime of bailout money. They are getting more Federal socialist aid than they paid for the company. Chrysler is a Negative Trademark, with a long history of shoddy workmanship, poor customer service -it is doomed to failure, not even Mercedes Benz could rehab the stinking rotting company. Cerebus, with an impressive string of raiding companies and then throwing them in bankruptcy, will have Crysler in bankruptcy in less than one year - after they have finished raiding all the money, just like they did for Meryvns, et al. It now is truly government of the corporation, by the corporation and for the corporation. Congress knows well who their true masters are.

2008 Dec 21 01:08 PM

[Fed up:]

No drug addict was every in more denial than the Detroit 3 and it's fans. Can anyone watch the performance of the UAW day in and day out and really believe they will ever produce a good product at a good price for their customers??? Better yet, do you think they even know that they too have customers?? Their only concern is how can they make more money for themselves and to hell with everyone else, including the companies, employees coming after them, customers, and taxpayers. They have a difficult job in those plants but sorry folks, their compensation as the highest paid industrial workers in the world is not warranted and is not competitive. Coupled with their arrogance and entitlement attitude; game over. No business with competition can survive with a labor force like the UAW. When will we admit that?? Enabling this addict may cause some temporary improvement but will not result in lasting success as the last 35 years of downsizing and "restructuring" have shown. If you believe otherwise, by all means, go buy their stock and their prodcuts. Not interested? Thought so. Me either. I already bought my share of pity cars from them. They looked nice, fell apart, and their employees still treated me with disinterest; like always. Now I shop around and buy what is best for me. You know, kinda like a competitive marketplace.

2008 Dec 21 01:50 PM

[PeakOiler:]

Nothing in the article or the comments about the other half of the problem: DEMAND is very weak and looks to stay weak throughout the recession, estimated by guys like Roubini to end late 2009. Even the best auto makers (Toyota, Honda, BMW) are struggling to sell vehicles, with Toyota at least taking huge losses.

So, while the supply side is being addresssed by the government, the demand side shows no signs of improving. What will drive demand in 2009, as unemployment continues to increase?

2008 Dec 21 02:03 PM

[User 323757:]

Ford making cars that are equal and/or better quality than Honda? I want sum of what u are smoking! I have owned 29 cars in 32 years. Three were Fords, and each one lost either the engine, transmission, or both. One lost a transmission 3 times. I currently own a Honda, and for the past 9 years, no problems. Union pay scales and demands leave little to no room for the kind of R&D American car companies must have to compete, and now Obama is going to pay off the union votes he recieved with our, the taxpayer money, so there is still no incentive for innovation on the part of teh American car makers. I say let the maket take em down, the business will go the more productive and superior products from Toyota and Honda. Let the maket work, no more giveaways to keep inferior, unproductive companies on the public dole. Its common sense.

2008 Dec 21 03:21 PM

[Trinitymaster:]

The car companies need to make big vehicles that get the same mileage as smaller cars.
It can be done. Whichever one of the big three brings out an SUV that gets 35 miles/gallon, and costs less than $25,000- will dominate the market.

BTW- it costs about the same amount to produce a large vehicle as it does a small vehicle.

P.S.: People are truly misinformed when they say that Legacy Costs are the root of Detroit's problems.

2008 Dec 21 04:35 PM

[kurt walter:]

No way taxpayer money should go to a private equity firm. Let the "deep pockets" from private equity cough up the money to keep Chrysler alive. It they don't have the money,well, let it die.

2008 Dec 21 06:57 PM

[jackooo:]

Gas prices are $1.59/gal. in Ca. Big cars are now in because the public hasn't got the brains to get rid of them. The lower the fuel prices the less incentive.
Regarding a letter from the Detroit press thanking Bush for the bail out:
I would send him a thank you everyday for the rest of my life if he gave me billions. I would also send Obama candy with the thank you for the 2nd bailout...

2008 Dec 22 01:43 PM

[Jobu37:]

Perhaps you need to remove your head from the sand. Ford has been improving quality at the fastest rate of any manufacturer that sells in the U.S over the last four years. They match both Toyota and Honda today. And on the car front they exceed both. The fact that more of Ford's trucks are used for real work drags them down a bit when compared to Tundras that never leave the asphalt and are mostly garaged. For the past three years, both the Ford Fusion and Mercury Milan have beaten the Accord and Camry in the annual JD Power surveys. The Ford Taurus and Mercury Sable have beaten the defect plagued Toyota Avalon over that same time period as well. And Focus rates very closely to the Corolla and Civic with the only difference being it has a 21st century suspension as opposed to the floaty unresponsive feel of the afore mentioned Asian offerings.

I'm sure you have owned 29 cars in 32 years but how many years ago was it that you owned your last Ford? Probably too long. Don't be scared. Go down and test drive one today. I promise the sales staff won't treat you like an idiot even though I'm sure anyone as uninformed of current events in the auto industry as you appear to be would most definitely have idiot written all over his face.


On Dec 21 03:21 PM User 323757 wrote:

> Ford making cars that are equal and/or better quality than Honda?
> I want sum of what u are smoking! I have owned 29 cars in 32 years.
> Three were Fords, and each one lost either the engine, transmission,
> or both. One lost a transmission 3 times. I currently own a Honda,
> and for the past 9 years, no problems. Union pay scales and demands
> leave little to no room for the kind of R&amp;D American car companies
> must have to compete, and now Obama is going to pay off the union
> votes he recieved with our, the taxpayer money, so there is still
> no incentive for innovation on the part of teh American car makers.
> I say let the maket take em down, the business will go the more productive
> and superior products from Toyota and Honda. Let the maket work,
> no more giveaways to keep inferior, unproductive companies on the
> public dole. Its common sense.

Jan 02 08:13 PM