The new Chrysler
To prove that it’s new, Chrysler has put up a website: ChryslerLLC.com
But what’s really “new” at Chrysler?
Chrysler, a brand which once was regarded as the best-engineered car in America, now has a reputation as the worst-built, least-reliable brand in the country.
It has not had a hit product since the 300. It is putting $5000 cash back on every Dodge truck – which it has to do because it hasn’t updated the Ram in living memory. It has a new line of minivans coming out this fall on which it has cut the price drastically, but that’s an attempt to preserve a market which it used to own. Moreover, that price cut is probably coming out of the dealer’s’ profit margin.
And you can’t give away a “hemi” because Chrysler, unaccountably, somehow couldn’t figure out a way to advertise the cylinder deactivation system available on the car, so potential buyers thought it to be a gas hog.
Pushing, it takes about three years to get an all new car or truck from conception to production. When he was at Chrysler, Bob Lutz actually managed to pull off the Viper in two years. But that was a relatively simple car with a very singular purpose, which didn’t have to appeal to a large market segment. Halo cars do not keep car companies in business. (Remember Studebaker and the Avanti?)
So, what is new at Chrysler?
A huge level of distrust.
Even before the Cerberus deal to buy the company closed, Chrysler was threatening fully one-sixth of its dealers with loss of their franchises if they didn’t sell more cars. This is coming from a company that is still trying to sell the unsold inventory of 2006 models. It is also a hollow threat because most states long ago adopted laws that make it virtually impossible to take a franchise away from a car dealer without rather lavish compensation. Anyway, what’s the benefit from closing a dealer who sold a car to one of the few buyers you’ve got?
Then, of course, there’s management.
Cerberus just put a man in charge at Chrysler who has a reputation as a killer. That he apparently gets paid only if the company makes money probably isn’t going to improve his image with the other executives. The fastest way to make cash flow better is to cut costs. That’s not necessarily in the long-term interests of the company, because building a future requires investing in that future. But, if you’re just in it for a quick score and then out – which is Cerberus’s reputation – then the future doesn’t matter.
Anybody at Chrysler who’s sane is going to be happy to entertain offers from elsewhere. That’ll cut costs, of course. But it also will deprive the company of the most talented and experienced people. That is not a formula for ultimate success.
Nor should we neglect the United Auto Workers and Congress.
It may be assumed that the Democrats in the House of Representatives will not, in fact, adopt the stringent mileage standards which the Senate passed. A Michigan representative is the chairman of the committee in the House that controls that legislation. Neither the automakers nor the UAW want that legislation to be enacted. The union may not have the clout it once had, but it only needs one man to block that legislation – and it’s got him.
Of course, should that legislation actually get through, Chrysler’s in huge trouble.
But, even if it doesn’t, they still have to square with the UAW.
There are only two ways to do it:
Copy the deal made by Ford and General Motors or take a strike.
Conventional wisdom has the current contract talks between the automakers and the union leading to the creation of a trust fund which would assume the pension liabilities of the automakers, and which the automakers would fund to the tune of billions of dollars in exchange for getting out from under those pension liabilities. This is not a particularly good deal for the automakers, but it is almost certainly the best deal they’re going to be able to make.
There is no way that the UAW will settle with Chrysler for less than they get from Ford or General Motors. Chrysler just hired as its boss Bob Nardelli, a man who got paid $210 million to leave Home Depot. Putting that man in charge of Chrysler just as negotiations are beginning with the United Auto Workers is certain to convince the workers that whatever deal Chrysler offers them is an attempt to screw them. Moreover, the union has no reason to believe that Nardelli can actually turn Chrysler into a profitable and viable company. He has no experience in the business, and the business is one in which experience counts for a lot. It’s experience that creates instincts, and it’s instincts that create hits, such as the Chrysler 300 or the Ford Mustang, or the minivan. Those instincts don’t come from selling house paint and carpenter’s tools.
Prospects for Chrysler do not seem good.
In the end, Cerberus’s real enemies may turn out to be General Motors and Ford.
Those companies can afford to pay off the UAW to rid themselves of the pension and retiree costs. It’ll hurt, but they can come up with the money. Both have foreign operations which are profitable. GM, in particular, has placed a large bet on China, and it seems to be paying off. If they could start making money on their United States operations, they’d be golden.
Chrysler, on the other hand, is completely dependent on the domestic market. It has no real foreign operations and isn’t even present in the emerging markets. It has Daimler to thank for that, because Daimler wasn’t about to set up Chrysler to compete with its precious and hallowed Mercedes-Benz brand. But, whatever the cause, the reality is the same: Chrysler has no operation outside the United States that can funnel money to it while it restructures here.
In short, Ford and GM can set the price of settlement with the UAW high enough that Chrysler cannot afford it.
And the UAW will never settle for less at Chrysler than it gets from Ford and GM.
Cerberus just picked as the new boss at Chrysler a man who was forced out as the president of Home Depot, but collected a $210 million dollar severance package in the process.
That is a man who has no credibility with workers at the UAW.
The next few months will certainly be entertaining.
But, as a passing thought, think back:
How, exactly, did Chrysler get put into play?
That’s right, General Motors expressed an interest in buying it. But not at the price Cerberus paid, or anything near it.
When it’s all said and done, would it be such a long shot to think that GM might just end up owning Chrysler, after all?