OT Chrysler's sorry state revealed OT

[PatS....]

Chrysler's sorry state revealed

Bankruptcy court filings reveal how complicated the auto business is - and just how much trouble Chrysler is in.

By Alex Taylor III, senior editor

Last Updated: May 11, 2009: 6:10 PM ET

NEW YORK (Fortune) -- Among the thousands of pages of documents filed in connection with Chrysler's Chapter 11 bankruptcy are affidavits from Chrysler executives that open up a window on the auto business previously closed to outsiders in this intensely competitive business.

They reveal an almost unimaginable complexity in the design, manufacturing, and distribution of new cars.

But what's more revealing is that the affidavits expose Chrysler's inability to successfully compete and the dangers facing the company in a prolonged bankruptcy.

Consider:

• Chrysler pays its suppliers 45 days after delivery. So if it suspends production - as it has now - for more than 45 days, the suppliers would have to resume manufacturing without their regular source of revenue. According to Scott Garberding, Chrysler's chief procurement officer, this imbalance of expenditures and revenues would be "catastrophic" to these marginally profitable companies.
  

• As long as Chrysler remains in bankruptcy, it will suspend development of new models. But it can't simply restart development months from now and expect to pick up where it left off because, in the words of Frank Ewasyshyn, a top engineer, "we lose some of the learning and expertise" about the new model. In the affidavit, he figures that work done after a restart will take one-and-a-half times longer than work done before.
  

• The longer Chrysler suspends production, the more it will cost to start back up, according to Ewasyshyn. The fluids that flow through the lines and equipment are perishable and must continue to flow, even when cars aren't being built. Paint is a particular problem. "Paint should be removed and stored after 21 days at a cost of $2 million," he said. "After 69 days, paint would need to be replaced at a cost of $15 million."
  

• Chrysler can't start making 2010 models until it finishes building the 2009 models presently sitting on the assembly line. So the longer Chrysler is shut down, the later its 2010 models will be to reach showrooms.
  

• Chrysler vehicles are such slugs on the market that 20% to 25% of the wholesale cost goes to dealer incentives, according to Peter Grady, director of dealer operations. Yet not only were there 286,687 2009 models - more than three months supply - sitting on dealer lots at the time of the filing but there were 36,370 2008 models left. In other words, they had been sitting around unsold for more than a year.
  

• Dealers depend on cash flow to support their operations, but as Chrysler neared its financing deadline, the checks stopped coming. A West Palm Beach dealer named James Arrigo reported that Chrysler owed him $639,000 in consumer rebates, $426,000 in warranty and parts receivables, $13,000 in new vehicle receivables - in total $1.7 million. The dealer reduced his monthly expenses from $2.1 million to under $1.3 million in an effort to stay afloat.
  

Chrysler's dire condition explains why vice-chairman Tom LaSorda has been so busy trying to sell the company - and why he has been so unsuccessful. LaSorda revealed in his affidavit that he had spent two-and-a-half years trying to find a partner for Chrysler. He approached most of the world's top auto companies: GM (GM, Fortune 500), Volkswagen, Toyota (TM), Honda (HMC), Nissan, and Hyundai - as well as India's Tata Motors, Russia's GAZ, parts maker Magna, and a number of Chinese companies.

"No party except Fiat emerged as a viable and winning alliance partner for us," LaSorda reported. After reading the affidavits, you begin to understand why.

You also begin to understand why the chances of Chrysler emerging from bankruptcy in any shape that resembles intact looks increasingly unlikely.

(Additional reporting by Doris Burke)

First Published: May 11, 2009: 2:10 PM ET

Find this article at:

http://money.cnn.com/2009/05/11/autos/chrysler_bankruptcy_filing.fortune/index.htm

[NatesSedan]

Pretty horrible. I hope that "Fiat Challenger" looks as good.

[dezeldoc]

Yep the Ford boys are already asking how my Cummins powered Fiat 1 ton is doing! had to remind them Ford was the first to jump on the Fiat bandwagon years ago.

[radioguy7]

I think I might take the plunge and go buy that 2008 orange R/T challenger I drive by every day. It keeps asking me to take it home to my garage!!

Funny thing is, you would think Chrysler dealersips would be very motivated to sell off their stock but I have found at least with this one dealership that they are not budging much on their out the door prices.Hmmm, makes you wonder. I guess they are hoping for this mess to turn around and at least be able to turn a profit on their inventory.

[greg g]

I understand the part of the chapter 11 deal will be looking at the validity of dealer franchises if and when the company re emerges. Thse who are not "blessed" can stay dealerships but will loose there status as prefered customers, for parts, vehicle inventory support, sales support, warrenty issues, and other stuff. Heard or read that close to half of the current dealers will disapear. How this works to deal with all that inventory is interesting.

[PatS....]

So, blaming this debacle on the unions is a bit far fetched.

[blueskies]

I understand the part of the chapter 11 deal will be looking at the validity of dealer franchises if and when the company re emerges. Thse who are not "blessed" can stay dealerships but will loose there status as prefered customers, for parts, vehicle inventory support, sales support, warrenty issues, and other stuff. Heard or read that close to half of the current dealers will disapear. How this works to deal with all that inventory is interesting.

With all this in mind, I still can't understand why these dealers are having a fire sale to get rid of the inventory... I tried for months to buy a new Jeep Rubicon from the nearest Chrysler dealer, and they won't budge off of the price when other dealers are giving 10k discounts from sticker. They are still sitting on the '08 Rubicon that I made offers on. According to NADA Guides, even with only 25 miles on it, it is now worth less than the offers I made in February. I guess they like the way it looks sitting there on the lot.

Pete

[radioguy7]

Blueskies, That was exactly the same response I got when I made an offer on the chalenger I've been drooling over. I figured it was because it was a challenger but, nice to see it's seems to be there attitude on many vehicles.

[PatS....]

I think the reason is that if it's financed, they won't get the money anytime soon, so they might be waiting for a cash buyer.

Chrysler in Canada is business as usual...sort of...they are not part of the bankruptcy at this point. Some dealers here are giving away a Dodge Caliber (new) if you buy a new truck. It's working so far.

Edited May 13, 2009 by PatS....

[dezeldoc]

Went to pay my truck payment today and on the main page it said in big print " we are not in bankrupticy, chrysler motors is":D

[Plymouthy Adams]

and you should have said, you soon will be when we all default on the loans because we cannot get warranty honored..let get nervous a bit...Obama would not make you repay the loan..gee..what ya think...

[RHDSP15C]

Chrysler is dying from self inflicted wounds. The process has been long and painful as they progressively lost brand loyalty from their customers and dealers. The management spent too much time on the golf course rather than

ensuring they were making autos that people wanted to buy. The writing has been on the wall since 1960 and fooling with Fiat is a joke. Water does not mix with oil.