Chrysler Bankruptcy: Why Car Buyers Might Not Notice

If Chrysler declares bankruptcy or liquidates, it will be a historic corporate failure. But car buyers might not notice that much.

Executives at the No. 3 U.S. automaker have tried practically everything to stay in business, including an attempted marriage with General Motors (GM) last fall, begging the government for money, and now, a risky plan to merge with Italian automaker Fiat (FIATY.PK).

Nothing seems to be working. GM, which has severe problems of its own, said no. The Obama administration decided Chrysler is too small and weak to survive on its own. The only way the government will plow more money into Chrysler – beyond the $4 billion it’s already spent – is if the Fiat deal flies.

But that looks endangered, too. Fiat has its own money problems, and it’s suddenly interested in buying GM’s Opel division, to strengthen its position in Europe. Merging with Chrysler, as a way to re-enter the U.S. market, may suddenly be a lower priority.

Meanwhile, Chrysler's creditors still haven’t made necessary concessions, which are required by the end of the month if Chrysler has a chance to avert bankruptcy. Consulting firm CSM Worldwide sees a 95 percent likelihood of Chrysler declaring bankruptcy, and the government is supposedly helping Chrysler prepare for a Chapter 11 filing.

If that happens, it will directly affect 50,000 Chrysler workers, and thousands more at suppliers and dealers. But the impact on consumers will be much more limited. Here’s why:

Chrysler has been shrinking for years. The automaker’s market share is only about 11 percent, according to J.D.Power & Associates, down from 16 percent ten years ago. GM’s Chevrolet brand alone sells nearly as many cars as Chrysler’s three divisions. With overall industry sales down about 40 percent from their 2005 peak, there are simply too many automakers and too many dealers selling more cars than Americans want to buy. Even if Chrysler and all its brands disappeared overnight, there would still be an oversupply of cars and factories in the U.S. market.

Chrysler’s vehicles are the wrong kind. When gas hit $4 per gallon last year and Americans downsized their taste in cars, Chrysler suffered more than any other automaker. That’s because it’s far more reliant on big trucks and SUVs than anybody else, even GM. “The inferior quality of its existing product portfolio and its heavy truck mix leave the company poorly positioned,” the government’s automotive task force declared in its March 30th findings on Chrysler. The Fiat deal was supposed to fix that, since Fiat builds some small cars popular in Europe. But under the best conditions it would take at least two years to start selling those here, and that would solve just part of Chrysler's problem.

The company has few killer products. Out of 25 or so Chrysler, Dodge and Jeep nameplates, CSM counts only four as “unique:” The Jeep Wrangler, Dodge Ram pickup, Dodge Viper, and Chrysler Town & Country minivan. Most of the rest, like the Dodge Durango SUV, Chrysler Sebring sedan, and Jeep Patriot are similar to many other vehicles in the market – and in most cases, not as good.

The best vehicles will probably survive. If Chrysler declared bankruptcy, it could still end up in a kind of merger with Fiat or another suitor, such as Nissan (NSANY), Hyundai (HYMLF.PK), or a Chinese automaker. The difference would be a much more severe downsizing across Chrysler’s entire operation, resulting in fire-sale acquisition prices for the most valuable assets. If that happened, brands like Jeep and the Dodge Ram would probably survive in their current form. But the umbrella brand – Chrysler – is so weak that CSM predicts it could disappear entirely.

GM and Ford could benefit. A lot of consumers still insist on buying from the Detroit 3, but few limit their loyalty to just one of them. That means many Chrysler customers could shift over to Ford (F) and GM – which might be just the kind of help they need to fix their own problems. So patriotic buyers who want to spend their money supporting the home team will still be able to. There would just be fewer players on the team.

Disclosure: no positions

Comments

[User 401177:]

Out of the big three the best truck on the market for mpg has been the dodge ram w/ 5.9lt , It`s been the most dependable ,less costly parts and easier to work on

Apr 24 04:31 AM

[niftyfifty:]

I give Ford a pat on the back...they did NOT take government money and to date still haven't. They did thing right, yet GM continues to drag the others down. Ford had gotten down to just 4 brands...I see GM is still too stubborn to drop some brands like the ridiculous Hummer. GM is sucking the life out of the rest. No truck is better than the Ford F150, no boomer car better than the Mustang, the best SUVs on the market, fuel efficient Fusion and Focus. GM needs to get with it instead of sucking the life out of our auto industry. How is it Ford did everything right and GM didn't? And Ford DOES have an electric vehicle that looks similar to a small SUV while GM has the small electric car. And news for city dwellers...in the hills, mountains and rural areas we NEED the SUVs and trucks! Puny little cars will NOT last in this terrain and there will ALWAYS be a market for the larger "work" vehicles. I have always and will always buy Ford/Mercury...the REAL American car company.

Apr 24 05:47 AM

[mcbain:]

Ford F-150 now the best.
www.ford.com/about-for...


On Apr 24 04:31 AM User 401177 wrote:

> Out of the big three the best truck on the market for mpg has been
> the dodge ram w/ 5.9lt , It`s been the most dependable ,less costly
> parts and easier to work on

Apr 24 07:58 AM

[Paul Killinger:]

Not much to say about this, except it's too bad for America and Chrysler. Lee Iacocca and the feds rescued them once, but it doesn't appear there's another miracle in store this time. One could argue they've been living on borrowed time ever since.

Apr 24 09:11 AM

[Paul Killinger:]

Maybe there will be some modestly positive outcomes after all...

1. Nissan is interested in buying Dodge trucks.

2. Someone else may well buy Jeep.

3. Another automaker could want their van technology.

4. Maybe Daimler will rebadge and update the 300C and sell it here.

Apr 24 09:19 AM

[dw57:]

i suspect that we as car buyers will see some thing when Chrysler crashes. it just won't be what you expect. it will prices will go up, because there will be less supply, and what remains will be more costly as the fewer vehicles built, the more it costs to build those that are. will there be a lot of pain when they crash? highly likely. will the remaining companies have problems? yes cause the all share the same suppliers . and those suppliers are already struggling massively. will there be any interest in the assets? probably not, after Toyota just built a new plant, and they moth balled it before it ever built a car. will Ford end up needing cash soon? sure, the car market has tanked so bad, and they aren't that much better off than Chrysler is in cars. they just mortgaged their entire company when that was possible. which not looks to be a really good choice.

Apr 24 12:16 PM

[SouthernCEO:]

I have a Dodge Journey so I hope Chrysler is still around to work on my car if needed. I hate to see any of our car companies go away. Lot's of history here and lot's of great cars over the years. Muscle cars still draw crowds and none of these are Fiats.

Apr 24 01:55 PM

[Whippet:]

"Think Global?" Try, "Think Edsel." Fortunately, we're not all drunk on the anthropogenic global warming alarmist kool aid, yet.

Just what the market is screaming for right now- $25K recyclable (read: plastic) cars that can't make it across the state of Connecticut without recharging. And wouldn't dare step onto an expressway for fear of being splattered, for that matter. All when Toyota can't even sell a Prius. Get real.

Regarding the article, the most interesting thing to me is how "the Obama administration decided Chrysler is too small and weak to survive on its own." Really? Corporations with 50,000 employees are TOO SMALL? Seems like there are two categories of firms anymore- those too big to fail and those too small to succeed. There's no possibility whatsoever that government trade, taxation, labor, environmental, and other policies have played a role in their demise? The fascists are here to stay.

<Electric Car Manufacturers Inspire New Paradigms (article) -- Think Global, a Norwegian based company funded by Rockport Capital Partners, Kleiner, Perkins, Caufield & Biers (early successful investors in Google (GOOG), AOL (TWX) and Amazon.com (AMZN) to name a few) and General Electric (GE), is planning to introduce its partnership: Think electric cars in the U.S. market by the end of 2009. Price tag: about $25,000, made from 95% recyclable materials with a top speed of 65 miles per hour and range of 110 miles per charge>

Apr 24 02:52 PM

[Chris B:]

Chrysler deserves to die. Even the govt., which is trying to prop them up, admits that they have "inferior quality." Their market share reflects that fact that consumers are noticing the 3-5 year old Chrysler products on the road blowing smoke out the tailpipe, missing plastic body panels, and peeling their paint off.

When's the last time you saw a Dodge Neon - on the road - that was 5 years old or more?

Apr 24 04:19 PM

[The Betsy:]

Rick Newman said:
"Chrysler’s vehicles are the wrong kind. When gas hit $4 per gallon last year and Americans downsized their taste in cars, Chrysler suffered more than any other automaker. That’s because it’s far more reliant on big trucks and SUVs than anybody else, even GM."

1. Chrysler's vehicles are not the wrong kind in a free society. We are not yet a People's Republic forced to drive "The People's Car." But this might be the intended direction of global governments. Why are the federal and local governments are buying up these hemi-powered "gas guzzlers" for themselves.

2. Despite gas prices, I know I never downsized my "taste" in cars. I have never liked the minimalist Japanese styling or sizing. Nothing against Asia -- just not my personal style or taste. Many of us have gotten used to buying used economical cars over the years, not by choice of style or size, but for sheer economy and longevity sake. We have had to settle for what we can afford to buy and repair. Through this Big 3 re-org, it is finally a pleasure to afford an American car after owning 2.5 driven-into the-ground Japanese cars in the past 30 years. (The Chinese will probably tell you the same thing.) This was purely out of financial necessity, not by "taste."

3. Chrysler suffered the most because financially they are the smallest company in comprison. Compare Krogers to Joe's Grocery Store. Chrysler is also targeting a market that likes big powerful engines -- now the government.

Apr 24 07:03 PM

[TF Wright:]

I see thiem everyday and I'm in the rust belt. 5 yr old ones, 10 yr old ones, too. They're out there, or atleast they're out here. ;-)

> When's the last time you saw a Dodge Neon - on the road - that was
> 5 years old or more?

Apr 24 10:07 PM

[devassocx:]

I agree with you....mopar vehicles are much better than
the common perception.

I have a 2007 Dodge Magnum and really like it a lot...why that model was discontinued when they were selling 4k units/month never made sense to me...it's almost the same as the Chrysler 300 with different sheet metal...very bad mistake I think.

But it's better to let the free market sort all this out and keep the
government out of it...government picking losers and winners just
makes the losers go down harder and allows the winners to
have inferior products.

There is a lot of proud history to the U.S. car industry. Just too
bad that recent managements at these companies have allowed
the industry to be so vulnerable and fragile.

On Apr 24 01:55 PM SouthernCEO wrote:

> I have a Dodge Journey so I hope Chrysler is still around to work
> on my car if needed. I hate to see any of our car companies go
> away. Lot's of history here and lot's of great cars over the years.
> Muscle cars still draw crowds and none of these are Fiats.

Apr 24 11:06 PM

[Phil Dewey:]

I really hope someone picks up the Chrysler SRT unit. Those cars are some of the best in the US.

Apr 25 01:24 AM

[twotraps:]

first, its a total shame...second, its far more complicated than most of us imagine. There has been little pressure from the 'failure' mechanism in business. Consider that at the time much of the current structure between management and the union was set up when profits were fat and competition not a consideration. Strip away the profit....pour on the heat from other manufacures...a credit squeeze and stock market correction.........All your really left with is an outdated format choking on itself, but neither party willing to give in. Legislators have contributed to the tangled web with laws protecting everything from labour to dealerships.

The US auto industry may have blown one of the biggest leads in the history of leads and seemingly refuses to take its medicine and stay alive. Competition is a wonderful thing when its left to work. I am not in the industry and do not fully appreciate the scope of the issue, but it seems to me that they are unwilling as a group (management and union) to get it together. Forced to survive, could they have worked out a deal where everyone had stock or some incentive for the company to do well? Instead they march to the govt. and plead their case like little kids. Wow!

Apr 25 05:53 AM

[slowdown:]

yippie ky yay....how many hours do you think it will take me to ride one 52 miles to work and then 52 miles back? If you want to live in the city and ride bikes...that's fine...not so fine for us country folks.


On Apr 25 07:08 PM James Rickman wrote:

> see my new blog/article on the $61 Billion global bicycle industry
> which shows 10% - 25% growth thru 2011.

Apr 25 10:52 PM

[Lightway:]

You're kidding about the Prius right? Not sure where you live, but there are consistent waiting lists in Southern California to get one.

A quick search shows a steadily increasing sales rate, only backing off last year due to the economic meltdown in an industry which is experiencing one of it's worst 12 months ever.

en.wikipedia.org/wiki/...

On Apr 24 02:52 PM Whippet wrote:

> "Think Global?" Try, "Think Edsel." Fortunately, we're not all
> drunk on the anthropogenic global warming alarmist kool aid, yet.
>
>
> Just what the market is screaming for right now- $25K recyclable
> (read: plastic) cars that can't make it across the state of Connecticut
> without recharging. And wouldn't dare step onto an expressway for
> fear of being splattered, for that matter. All when Toyota can't
> even sell a Prius. Get real.
>
> Regarding the article, the most interesting thing to me is how "the
> Obama administration decided Chrysler is too small and weak to survive
> on its own." Really? Corporations with 50,000 employees are TOO
> SMALL? Seems like there are two categories of firms anymore- those
> too big to fail and those too small to succeed. There's no possibility
> whatsoever that government trade, taxation, labor, environmental,
> and other policies have played a role in their demise? The fascists
> are here to stay.
>
> <Electric Car Manufacturers Inspire New Paradigms (article) -- Think
> Global, a Norwegian based company funded by Rockport Capital Partners,
> Kleiner, Perkins, Caufield &amp; Biers (early successful investors
> in Google (seekingalpha.com/symbo...), AOL (seekingalpha.com/symbo...)
> and Amazon.com (seekingalpha.com/symbo...) to name a few)
> and General Electric (seekingalpha.com/symbo...), is planning
> to introduce its partnership: Think electric cars in the U.S. market
> by the end of 2009. Price tag: about $25,000, made from 95% recyclable
> materials with a top speed of 65 miles per hour and range of 110
> miles per charge>

Apr 26 04:16 AM

[willow49:]

Chrysler has been shrinking for years because Daimler didn't put any money into the company. They took every dollar of profit from Chrysler to pay off their debt.

Apr 26 06:32 PM

[willow49:]

I live in the middle of the Rust Belt. I see Chryslers and Chevys all over the place. I personally drive a 1995 Chrysler LHS. It's as much fun to drive today as it was in 1995. We replaced our 1996 Town and Country in 2007 with another Town and Country. The people who bought our '96 drive it everyday - including family vacations. I love my Chryslers!


On Apr 24 10:07 PM TF Wright wrote:

> I see thiem everyday and I'm in the rust belt. 5 yr old ones, 10
> yr old ones, too. They're out there, or atleast they're out here.
> ;-)

Apr 26 06:37 PM

[smitthy5672:]

i have two neons 96,2000 both have over hundredthousand miles and run great


On Apr 24 04:19 PM Chris B wrote:

> Chrysler deserves to die. Even the govt., which is trying to prop
> them up, admits that they have "inferior quality." Their market share
> reflects that fact that consumers are noticing the 3-5 year old Chrysler
> products on the road blowing smoke out the tailpipe, missing plastic
> body panels, and peeling their paint off.
>
> When's the last time you saw a Dodge Neon - on the road - that was
> 5 years old or more?

Apr 27 06:06 PM

[jimmy46:]

I have a PT cruiser, a unique car and great quality
and very versatile.
I took the back seats out, which is very easy,
and have a very large cargo space for things and my dog.
28mpg

Apr 29 03:34 PM