Is Chrysler Viable?

| About: Fiat Chrysler (FCAU)

It looks like Chrysler’s efforts to cook its books, by stuffing the channel, is taking on new urgency. In an AP report, Chrysler VP, Jim Press, is quoted, threatening dealers to buy more unneeded cars: "You have two choices," Press told the group, according to the trade publication Automotive News. "You can either help us or burn us all down." The full article can be read here.

Of course, moving automobiles, for which there is little demand, from Chrysler’s balance sheet, to the dealer balance sheets, does little to inspire confidence that a viable business plan will be forthcoming. And since the dealers are likely financing these cars with TARP money, via Chrysler Financial or participating banks, it is all the more discouraging.

One wonders, though, whether U.S. Treasury officials will fuss over such details. Soon it will be reviewing Chrysler’s business plan to determine whether it is viable, and thus qualifies for additional TARP support. So far, I am not convinced that Chrysler can be a viable automaker. And it’s not just the dubious dealer sales which are giving me doubts. The sudden deal with Fiat (FIATY.PK), where it has traded Chrysler shares for small-engine technology plans, should also be viewed skeptically. Given the long lead-time to transform itself into America’s small car maker, and the lack of risk (to Chrysler or Fiat), it looks more like a tale crafted to unlock more TARP funds: Once upon a time, a stodgy and failing American automaker exchanged paper shares for paper technology plans, and abracadabra...America’s small car maker appeared!

Such a tale would be more convincing, if somebody other than the U.S. Treasury were seeking to fund it! If Cerberus isn’t willing to make further investment in Chrysler, and it can’t even convince Fiat to include a bit of cash for the ownership position…what kind of signal is that sending?

A stop sign.

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