Chrysler Chapter 7 liquidation imminent?

[Laconian]

http://www.thetruthaboutcars.com/editorial-chrysler-suicide-watch-41-rip/
Editorial: Chrysler Suicide Watch 41: R.I.P.

By Ken Elias
October 31, 2008 - 1,019 views

Chrysler is dead. Look for a Chapter 7 filing soon; that?s a liquidation plan, not reorganization. The judge will part-out and sell ChryCo?s few valuable assets to the highest bidders. There will be no ?Hail Mary? pass to General Motors, no government rescue, no money from Cerberus to keep its corpse from the grave. Yes, the mythical three-headed dog of Hades does keep souls from escaping Hell, try as they might.

Despite GM?s desire for the $9b in cash supposedly on Chrysler?s books, the money comes with even bigger liabilities: health care, pensions, taxes, supplier obligations, the works. In fact, Chrysler is saddled with as much as $27b worth of claims. Those claimholders have no interest in letting Chrysler unwind in the hands of GM? which would keep all those claims unpaid. Better to just get it over with and pay it out now. The best idea for Chrysler is, was and will be immediate liquidation. Add the proceeds from the sale of Chryco?s assets to that cash pile and there might be as much as $20b+ to disburse.

The first ones to dine on the cash are Chrysler?s lenders, led by Goldman Sachs and JPMorganChase. They originally lent Cerberus about $10b or so to fund the acquisition from Daimler, with the hopes they could then sell the debt off to bigger schmucks. Well, they mostly failed at selling it, unloading only a portion, maybe about 40 percent (or so we?ve heard) at discount to some greater fools.

The banks are still stuck with the rest and they aren?t happy about it. If you were a sane banker in troubled financial times, would you transfer your repayment risk to General Motors, an equal if not even worse credit than Chrysler today? GM was counting on a government loan to GM to pay these lenders off? or at least guarantee their debt. Give Hank Paulson credit; he simply said ?no way.? The Feds aren?t gonna take the heat for paying Wall Street off while jobs are lost.

So no, the bankers will never agree to a GM-Chryco Motors tie up. Better for them to take the priority position they get in liquidation today and take what they can. After all, Chrysler?s cash pile only gets smaller every day Chrysler continues to operate.

The second group that has a claim on Chrysler?s cash: vehicle owners. Yep, warranty claims out into the future. Remember, most recent vintage Chrysler vehicles (in service beginning in 8/07 and later) have powertrain for life warranties. The bankruptcy judge has to set aside funds to cover those claims. Say? $3b worth.

The third group: labor. The United Auto Workers (UAW) negotiated a contract that requires Chrysler to shovel $10b into a health care trust (a.k.a. VEBA) for retirees. Even the UAW wasn?t crazy enough let GM takeover Chrysler and absorb this liability when GM can?t even pay what it promised to the union. In any case, this is an unsecured claim. It?s doubtful the UAW could legally stop a sale to GM, but they can make life unpleasant for an automaker.  Heck if the workers are going to lose their jobs anyway, they might as well get what they can now for retirees.

And last: working capital claims for the balance. Unpaid vendors, employee wind downs, taxes, and the rest. Maybe another $4b or so. All told, $27 billion in claims against the cash plus whatever the Court can sell the rest of the assets for. Call it $10 to $15b. Best of all, assets sold out of bankruptcy come with no liability tail for the buyer, which make them much more attractive. No pension obligations, no warranty claims, no retiree health care. Clean and simple. And you don?t even have to take the UAW contract!

I reckon that there are four major components of Chrysler that will get sold. First, the Jeep brand. Although known worldwide, it really has only has one unique product (the Wrangler). But it?s cheap to build, generates a ton of profit per vehicle and will never go out of style. Yep, wrap that up. Maybe it?s worth $3b?

Second, the minivan biz. Already having consolidated assembly in one plant (Windsor), it?s easy to just supply other automakers like GM and VW. Hmm, do I hear Magna calling? So let?s say it?s worth $5b.

Third, RAM trucks hecho in Mexico. Nissan needs a truck and they?ve already agreed to buy their next Titan built in Chrysler?s Saltillo plant. Ok, so maybe it?s 100k units per year only. Might as well buy the plant and the rights to the truck. How much did it cost Toyota to develop the Tundra and build its now underutilized San Antonio truck plant? Let?s put a $2b price tag on this.

And fourth, Chrysler?s parts supply division. I don?t know how many Chryco rigs are on the road, but they?re going to need parts for a long time. Existing parts inventory that?s worth something plus profits from sales that will continue for years. So we?ll put a $1b price tag there.

So are you getting my drift now? There?s no GM-Chrysler deal ever. The government can?t stomach funding a deal where jobs are lost with taxpayer money. Better to shut Chrysler down in bankruptcy, and let Cerberus lick its chops. Those jobs were going to be lost with or without GM in the picture.

[SVT666]

I bet we'll be able to buy some really cheap cars and trucks.  The only problem is, when a part fails in 10 years, where will you buy it?

[TBR]

I bet we'll be able to buy some really cheap cars and trucks.  The only problem is, when a part fails in 10 years, where will you buy it?

"And fourth, Chrysler?s parts supply division. I don?t know how many Chryco rigs are on the road, but they?re going to need parts for a long time. Existing parts inventory that?s worth something plus profits from sales that will continue for years. So we?ll put a $1b price tag there."

Considering I can buy even the most obscure part brand new for my 12 year old Honda I wouldn't be worried about it.

[SVT666]

"And fourth, Chrysler?s parts supply division. I don?t know how many Chryco rigs are on the road, but they?re going to need parts for a long time. Existing parts inventory that?s worth something plus profits from sales that will continue for years. So we?ll put a $1b price tag there."

Considering I can buy even the most obscure part brand new for my 12 year old Honda I wouldn't be worried about it.

I guess so.

[Eye of the Tiger]

I hope VW buys Chrysler and makes a rebadged GTI called the Dodge Omni GLH. haha

[SVT666]

I hope VW buys Chrysler and makes a rebadged GTI called the Dodge Omni GLH. haha

I would like to see a Shelby Omni.  That would be sweet.

[Eye of the Tiger]

I would like to see a Shelby Omni.  That would be sweet.

Anything is better than a Caliper SRT4.

[Byteme]

"And fourth, Chrysler?s parts supply division. I don?t know how many Chryco rigs are on the road, but they?re going to need parts for a long time. Existing parts inventory that?s worth something plus profits from sales that will continue for years. So we?ll put a $1b price tag there."

Considering I can buy even the most obscure part brand new for my 12 year old Honda I wouldn't be worried about it.

In 1970 I hit a deer with my 1966 Charger.  Needed a new grill and headlight assembly parts.  Just three years out of production (67 models had the same parts) and those parts were virtually impossible to obtain.  Took four months to get them.

The point is not all parts may be easy to get.

[TBR]

In 1970 I hit a deer with my 1966 Charger.  Needed a new grill and headlight assembly parts.  Just three years out of production (67 models had the same parts) and those parts were virtually impossible to obtain.  Took four months to get them.

The point is not all parts may be easy to get.

30 years of inventory control and manufacturing technological improvements must count for something here.

I don't see why in 2020 it would be any harder to get a parts for a model 2008 Chrysler/Dodge than it would be to get them for a model 2008 Toyota.

[Laconian]

Chrysler under Cerberus doesn't seem to be a firm that gives a shit about the future. Building and managing inventory is costly,and Nardelli LOVES TO CUT COSTS!

[Byteme]

30 years of inventory control and manufacturing technological improvements must count for something here.

I don't see why in 2020 it would be any harder to get a parts for a model 2008 Chrysler/Dodge than it would be to get them for a model 2008 Toyota.

Because they selll a bunch more Toyotas than Chrysler Corp products.

Because the money tied up in inventory ties up capital.

30 years of inventory control and technelogical improvements are, to a large degree designed to lower how much inventory maunfacturers actually have on hand for manufacturing and lower how much are in parts centers for distribution to dealers for repair.  Why tie up capital in inventory unless you have to.  That's a major purpose of inventory control; cost containment.  It's why inventory and manufacturing techniques such as JIT and Kanban are used.

[TBR]

Because they selll a bunch more Toyotas than Chrysler Corp products.

Because the money tied up in inventory ties up capital.

30 years of inventory control and technelogical improvements are, to a large degree designed to lower how much inventory maunfacturers actually have on hand for manufacturing and lower how much are in parts centers for distribution to dealers for repair.  Why tie up capital in inventory unless you have to.  That's a major purpose of inventory control; cost containment.  It's why inventory and manufacturing techniques such as JIT and Kanban are used.

They sell more Land Cruisers than they do Calibers? I don't think so.

The point with inventory control is that they are more aware of what they actually have and probably strategize more about how many of what parts to keep in inventory. And the better manufacturing ability means they can make parts very cheaper and with less lead time.

[nickdrinkwater]

Surely they must sell more Land Crusiers than Calibers?!

[2o6]

They sell more Land Cruisers than they do Calibers? I don't think so.

Oh yes they do. They're the truck of choice when the going gets tough........they're just tarted up and given all sorts of creature comforts for the american audience. Toyota/Lexus sells more Land Cruisers worldwide than Chrysler Corp. sells Calibers worldwide.

[TBR]

I HIGHLY doubt that.

[the Teuton]

I HIGHLY doubt that.

Remember, in Africa, they still sell variations of the FJ60.

[TBR]

Yes, I am sure they sell a hundred thousand or so Land Cruisers in Africa.

[2o6]

Yes, I am sure they sell a hundred thousand or so Land Cruisers in Africa.

Lets not forget about Asia, Europe, Australia and other locales with rough terrain.

[TBR]

I assure you they don't sell as many Land Cruisers worldwide as Dodge sells Calibers in the USA alone.


But, this is largely irrelevant, if you would like to deceive yourself about how many LCs Toyota sells just change that to Highlander.

[dazzleman]

It's pretty sad that it's come to this for Chrysler.  It's been a long time coming.  Their cars have been crap for decades, and the only mass-market vehicle that they had that was appealing was the Jeep (which they got from AMC when that company went under).

The proposed pairing with GM made little sense because GM is also in big trouble.  Bad unions, bad management, a short-term mentality, and complacency have brought the US manufacturers to this sorry state.

I still remember the much vaunted K-cars.  Always hated those pieces of shit.  Did they even notice that "K" is the symbol for strikeout?

[Secret Chimp]

My grandma had a K-car station wagon. We drove it to a park in Montana back when they had no speed limits - my dad could floor it and it wouldn't go over 90.

[dazzleman]

My grandma had a K-car station wagon. We drove it to a park in Montana back when they had no speed limits - my dad could floor it and it wouldn't go over 90.

She definitely fit the K-Car demographic.  It was an old fart car.  Total piece of crap.  And that was the great car that was heralded by Lee Iacocca....the car that supposedly 'saved' Chrysler   I'd rather slit my wrists than have to drive one of those things.

[SVT666]

They still saved Chrysler.  Jeep isn't the only appealing vehicle Chrysler sells.  The Ram, 300C, Charger, Challenger, Grand Caravan, and Town & Country would also be on that list.

[dazzleman]

They still saved Chrysler.  Jeep isn't the only appealing vehicle Chrysler sells.  The Ram, 300C, Charger, Challenger, Grand Caravan, and Town & Country would also be on that list.

It's a sad commentary on the state of automotive selections in the 1980s to think that that stinkbomb of a car is what saved Chrysler.  But I think you're right.  I was allowing my personal opinion of the car to override business realities.

You're right about the other vehicles too, to a point.  Chrysler has been particularly appealing in the truck category, pioneered the minivan (for better or worse), and has a couple of good muscle car offerings.  But most of those are gas guzzlers, and this year their sales have been suffering.  I wonder if people will go back to the gas guzzlers to an extent with lower oil prices.  If they do, they're foolish, because they can shoot back up as easily as they've come down recently.

I don't think Chrysler is really in a radically different position than GM or Ford over the long run.  They all face very serious problems, and they allowed themselves to get into the same bad position they were in in the 1970s -- depending upon gas guzzlers for virtually all their profit margin at a time when energy costs have been rising.

The dire state of the domestic auto industry is a major economic concern.

[Rich]

I think the K cars contributed to the demise of Chrysler, actually.  If they had been better designed/engineered, then sales might not have decreased so much since their release. 

Yeah, it might have saved them short term, but those cars still affect the opinion of a car shopper in 2008.  Example 1: Dave

My Dad had a 1988 Dynasty, that was a pile of crap, and because of that he never bought a car from Chrysler again

[dazzleman]

I think the K cars contributed to the demise of Chrysler, actually.  If they had been better designed/engineered, then sales might not have decreased so much since their release. 

Yeah, it might have saved them short term, but those cars still affect the opinion of a car shopper in 2008.  Example 1: Dave

My Dad had a 1988 Dynasty, that was a pile of crap, and because of that he never bought a car from Chrysler again

I was never a fan of Chrysler.

The K car saved Chrysler in the 1980s only because the selection of cars available at that time was so dismal.  They brought some money into the company at a time when it was badly needed.

But all of the Big 3 created a lot of the problems they face today during that period.  People bought the crap that was available during that time, but they didn't forget that they bought crap, and when better options were available, they went elsewhere for their future cars.  I've been picking on the K-car because it's such an easy target, but Ford and GM had essentially the same strategy during this period.  Remember the Citation-Omega-Skylark combo from GM, as well as the Escort-Lynx combo from Ford?  These cars were also touted as the great future cars that were going to kill the Japanese competition.  There are millions of people walking around today who won't consider buying a car from any of the Big 3 because they bought one of these ill-fated brands.

Image and perception is a big factor in what cars a person buys.  The Big 3 all threw away their images in the 1970s and 1980s, and allowed their brand identification to cheapen considerably.  Cadillacs and Lincolns went from being high class cars to pimpmobiles.  GM has repeated that mistake with the Escalade.  So by cheapening their image, and selling people cars that were crap, the Big 3 foreclosed a lot of their future options during that ill-fated period in the 1970s and 1980s.

[565]

I assure you they don't sell as many Land Cruisers worldwide as Dodge sells Calibers in the USA alone.


But, this is largely irrelevant, if you would like to deceive yourself about how many LCs Toyota sells just change that to Highlander.

Actually Toyota sells more Highlanders in the US than Chrysler does Calibers.

http://www.clublexus.com/forums/showthread.php?s=cf12cee61ce8820efefdf2b28ccb18ab&t=382903&page=2

Page 1 and 2

Caliber YTD as of end of september: 74,069

Highlander YTD as of end of september: 81,951

The Caliber does outsell the Landcruiser here in the states, but there are also those other international markets people were talking about.

[SVT666]

I was never a fan of Chrysler.

The K car saved Chrysler in the 1980s only because the selection of cars available at that time was so dismal.  They brought some money into the company at a time when it was badly needed.

But all of the Big 3 created a lot of the problems they face today during that period.  People bought the crap that was available during that time, but they didn't forget that they bought crap, and when better options were available, they went elsewhere for their future cars.  I've been picking on the K-car because it's such an easy target, but Ford and GM had essentially the same strategy during this period.  Remember the Citation-Omega-Skylark combo from GM, as well as the Escort-Lynx combo from Ford?  These cars were also touted as the great future cars that were going to kill the Japanese competition.  There are millions of people walking around today who won't consider buying a car from any of the Big 3 because they bought one of these ill-fated brands.

YOu may be right about that, but I don't know a single person who even remembers those cars.  As for the 70s and 80s, everyone made shitty cars, including the Japanese.  It was in the 90s when things started falling apart.  GM, Chrysler, and Ford still weren't making high quality vehicles in a time when the Japanese improved their quality and reliability dramatically.  In fact, the Big 3 really didn't start building high quality cars until the past 3 to 6 years (depending on the company).  It was too late at that point, considering the Japanese had been doing it for at least the past 10 to 15 years, again, depending on the company.

[dazzleman]

YOu may be right about that, but I don't know a single person who even remembers those cars.  As for the 70s and 80s, everyone made shitty cars, including the Japanese.  It was in the 90s when things started falling apart.  GM, Chrysler, and Ford still weren't making high quality vehicles in a time when the Japanese improved their quality and reliability dramatically.  In fact, the Big 3 really didn't start building high quality cars until the past 3 to 6 years (depending on the company).  It was too late at that point, considering the Japanese had been doing it for at least the past 10 to 15 years, again, depending on the company.

The Japanese cars in the 1980s were better than the American ones, even if they weren't as good as they became in the 1990s.  It was during that period in the 1980s that many people in my age group or older bought their last American car.  The perception spread that the Japanese cars were better, so many people of that age group went with Japanese cars after the bad experience with their 1982 Citation, or whatever they happened to have.

The only decent market share and profitability that the Big 3 have had in the intervening years has been in the truck/SUV market, for the most part.  They put all their eggs in that basket, once again, for short term reasons -- these vehicles had a higher profit margin than sedans, and there wasn't a ton of development required.

The thing they most egregiously threw away was their image.  Image is the main reason why people pay more for one car than another, when they all basically do the same thing, to varying degrees.  By allowing their image to be cheapened, and to allow their cars to be considered junk that you only buy if you can't afford something better, the Big 3 really painted themselves into a corner, particularly considering the cost disadvantages that they have vis-a-vis other manufacturers who don't have to contend with the UAW.

[2o6]

She definitely fit the K-Car demographic.  It was an old fart car.  Total piece of crap.  And that was the great car that was heralded by Lee Iacocca....the car that supposedly 'saved' Chrysler   I'd rather slit my wrists than have to drive one of those things.

It did save chrysler, it sold like hotcakes and spawned the Minivan.