Is Chrysler Out of the Woods Yet?
James Kwak cites Chrysler's May sales figures as proof that his predictions of last December are correct, and that a poll which indicated 91% of Americans wouldn't buy a car from a bankrupt Chrysler was just poorly worded:
In May - during which Chrysler was in bankruptcy - Chrysler sales were down 47% from the year-ago period. Overall sales were down 34%, which means non-Chrysler sales were down around 33%. So as a crude estimate, if Chrysler were like the average automaker, for every 100 cars it sold last May, it would have sold 67 cars this May. Instead, it sold 53. That's a 21% decrease - a lot less than the 91% predicted.
It may well be true that the Chrysler brand fares well in bankruptcy, but I think those conclusions are a bit premature:
Discounts of up to $12,000 are driving Chrysler cars off the lot nationwide as bargain-hunting consumers help terminated dealers clear inventory before the June 9 deadline.
"We've actually had a better month than we've ever had. The [Jeep] lot is empty," said Hamid Saghafi of Dulles Jeep in Leesburg, Va.
"We're trying to make deals, some ugly deals, and get them off our lots. Ugly to us, pretty to the customer."
On Thursday, June 4 Chrysler dealers began to testify in bankruptcy court, protesting the terms of Chrysler's plan to terminate 789 dealerships across the country starting on June 9. To say that the impact of this bankruptcy has not fully been absorbed across the country would be an understatement.
(As a side note, Tyler Durden has an interesting drill-down on the dealership closings.)
But more to the point -- Chrysler's May sales were heavily subsidized. Unless Chrysler plans to keep giving cars away at cost, those figures are anomalous.
I don't think there was any other choice for Chrysler, and the bankruptcy was well executed. But nobody with brand management experience would shrug off a statistic wherein 91% of the public say they won't buy a car from a company in bankruptcy, no matter how poorly worded the question was. The reason that people like Richard Shelby and Bob Corker were so cavalier about it was because they were trying to break the UAW. Theirs was an ideological, not a pragmatic crusade.
Chrysler and GM will spend a lot of money trying to deal with that brand damage. Future sales won't happen in a vacuum -- Chrysler will continue to offer incentives to make their product attractive. I'm hopeful that the US automakers will be able to rebrand themselves in the US as "new and improved," that the government will level the playing field by dealing with healthcare and providing a productive regulatory environment, and that the "halo effect" of new environmentally-friendly marques will provide a salutary climate for sales.
But I think it's a bit early to conclude the US automakers will emerge from bankruptcy with their brands unscathed, or predict how people will feel about them in the future based on Chrysler's May "fire sale" sales figures.
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The blue collar WORKERS, the ones who DO the job have been saying for years at all these corporations that they were getting the shaft, while those at the top were gettting all the benefits, the million dollar salaries, the golden parachutes, the everything.
A worker may not have a MBA, but it does not mean that that worker is not intelligent, it may just mean that a more qualified person, a more billiant person did not get the opportunities that a less qualified person, a less brilliant person got.
Obviously, the wrong people were in charge and now our United States of America is paying the price, more clearly stated, our middle and lower income workers have paid the price for many years now and just recently, those unintelligent and unqualified leaders are paying the price.
"I'm hopeful that the US automakers will be able to rebrand themselves in the US as "new and improved," that the government will level the playing field by dealing with healthcare and providing a productive regulatory environment"==========================================
As well as get a handle on the trade imbalances and unfair trade practicies that favor the foreign competition and keep out or limit exportation of US brands
Another playing field leveller would be - rather than the unfunded mandates to improve mpg, safety and emissions imposed by bureaucrats who know nothing about engineering or manufacturing, provide R&D subisides like the foreign competitor's govts do - the Japanese in particular
Not likely to survive unscathed. According to a recent NPR program discussing big bankrupcies, the stats are not kind to bankrupt companies. less than half survive more than a few years after emergence.
there is only one example, continental airlines, of a major bankrupcy that came back bigger and stroner. it just doesn't happen. And if you can call an airline a "success" story
it's interesting that no one notices the "experts" here have zero knowledge of the car business. it's not surprising that they ALWAYS take the negative attitude toward Chrysler.
I always love the comments about trucks; these comments are always from city folks, and 1) have no clue why someone would buy a truck, and, 2) never seem to notice that the Nissan and Toyota trucks (they make trucks? I thought they only made teeny, overpriced hybrids!) get the exact same fuel economy (or worse) than Fords, Dodges, or Chevrolets.
as a retired Dodge dealer who experienced the very same idiotic comments ("waddya goin' ta do when Chrystler goes outta bidness, sell StudEEbakers?") in the early 80s that we are experiencing today, I have no doubt that Chrysler will again emerge as a much stronger company. I find it interesting that all the folks who trash Chrysler today would have never bought a Chrysler product under any circumstances at any time anyway.
is there any reason we should listen to them now?
Maybe if you found out why they'd never buy a Chrysler product, maybe you could do something to change (whether at the dealership, the factory, the engineering lab or the design studio) that would satisfy their needs/desires.
If their only complaint is that Chrysler isn't a Japanese company, I guess you could show them why that doesn't matter.
" always love the comments about trucks; these comments are always from city folks, and 1) have no clue why someone would buy a truck, and, 2) never seem to notice that the Nissan and Toyota trucks (they make trucks? I thought they only made teeny, overpriced hybrids!) get the exact same fuel economy (or worse) than Fords, Dodges, or Chevrolets."===============================
exactly. seems many here on this site are down on trucks and the people who drive them. As you say - most are coastal city people who have never seen a farm, or know how to biuild things or do not have an active outdoor lifestyle
They also conveniently overlook the fact that their beloved Toyota relies heavily on trucks and SUVs in their product mix, trucks and SUVs that can't haul or tow as much or get any better mpg as their domestic competitors and are precisely the kind of trucks for city slickers and suburban cowboys they so despise.
The vast majority of US truck buyers continue to be tradesmen, contractors, farmers, and folks with active outdorr lifestyles like camping, boating as well as do it yourselfer types
hardly a weekend goes by that we aren't doing something with our truck - load of mulch, lumber for shelves, new tree to plant, towing the boat, hauling the kids bikes or going camping so forth
Chrysler does not have a decent selling family sedan; indeed but for fleet sales, they are in the bottom of sales lists in that category. With the demise of the Neon several years ago, they gave up on the small car market. Chrysler has very few sales in Europe, no ops outside the USA/Mexico, unlike Ford has and GM used to have. They are stuck with too many retirees with unsustainable costs to the company, something Honda, Toyota, Nissan, BMW ops in the USA don't have. Their trucks are big losers in the economy and many who need trucks in the future will move toward Chevy and Ford. Hundreds of dealers are gone, resulting in the loss of many 1000's for potenial sales per month forever. Fiat's small cars are going to take too long to get here and no matter how you label them, they are Fiats, a brand with a bad connection to the USA buyers. Their once strong leadership position in minivans is gone with competitors (especially Honda) making much better ones.
Despite all the life support for Chrysler, but for Jeep, I see then eventually flat lining, joining Studebaker, AMC in the ex-carmakers junkyard.
Chrysler will fail because after they emerge from BK they must depend on the consumer to support them. But until the Fiat cars start rolling off the line, they have nothing to sell, just same old-same old. And with gas pushing $3/gal by July 4th, that's a death knell for them. It wasn't the Fiat deal that tanked them; it was the Daimler deal. Daimler made Chrysler the truck division, got rid of its passenger car designers and engineers in the 2001 blood-letting then cut Chrysler loose in 2007 with no way to compete.
The sorry history of Chrysler since 1997 is why it won't survive:
1996: 3 billion in profits
1997: Daimler pays 36 billion. Immediately takes Chryslers 16 billion cash on hand
2001: (Prior to 9/11) 26000 laid off Company basically hollowed out.
2002: American executives ousted, Zetsche and Bernhard run company.
2005: Collapse of partnership with Mitsubishi (Chrysler's small car supplier for 20 years)
2007: Sold to Cerberus for 6 billion. Company given to Nardelli debt free with cash in bank
2008 1/2 Nardelli runs company into ground (thought it was Home Depot.) Fatelly damages brand
2009: Fiat buys Chrysler for ZERO dollars
See a pattern here? Still think the government (or Bill Clinton) is the problem?
No company can downsize its way to growth. Once the death spiral starts, it cannot be stopped.
well said
Thats the MBA way - cut chop close, downsize, outsource - for the persoanl gains at the top and detriment of everyone else
Emerge with thier brands "unscathed"? You've got to be kidding. If people didn't want these cars before there is NO way they will buy them now that they are owned part and parcel by the government and UAW.
If you doubt me ask the formerly most loyal GM/Chrysler customers--thier employees and thier families--especially the salaried guys getting the screws put to them buy GM, Delphi and Chrysler. My dad worked for GM for 30 years and retired from Delphi. He has lost his healthcare, life insurance, and now his pension, (while the UAW keeps all) I'll never buy another GM car and I'll spend every spare breath I have to make sure no one I know does either.
Hmmmmm, what does the UAW have to do with what *UN-UNIONIZED* workers lost? Did you father love the UAW or hate it?
What was the UAW suppose to do, in your opinion? Give up all their benfits so they'd be just as bad off as your father?
In the final analysis, your father must have believed all the promises GM CEOs made to him. Ya know what they call someone who believes in a verbal promise? A fool.
Do you believe the President that he doesn't want to run GM--even as he fires the chief, tells them which brands to shed, strong-arms bondholders, imposes stricter emissions standards and pledges more tax reciepts to them--to the disadvantage of their 'non-rescued' American peer, Ford? Huh, do you belive his verbal promise??
Of all the brands Chrysler and GM have / had, Jeep, Cadillac, and Buick seem to have the best chance of withstanding bankruptcy. Ironically, those are three of the least efficient vehicles on the road today. There is unlikely to be much of a market for Cadillac and Buick. Jeep, on the other hand, would seem to be a winner no matter what happens to Chrysler - if it hasn't already been sold off.
It may already be too late for both manufacturers with cars like the Cube and a couple of other trendy $15 K cars hitting the market. GM in particular is unlikely to be able to reinvent itself fast enough to keep a toe in market share.
A guy in my neighborhood ownes a Chrysler 300 sedan and loves it. He didn't get it with the big hemi. He said in a test drive, it was too easy to find himself doing 80 mph.
The Chrysler 300 is basically an outdated mercedes C-Class with a different body, comes from the times when Daimler owned Chrysler. Thats why its halfway a decent car.
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