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Chrysler relieved after GM backs out


November 9 2008

Much as Chrysler needs a saviour, few are disappointed that the Detroit carmaker’s rescuer will not be General Motors.

A takeover by GM “would have meant huge job losses for the workers and dealer closures”, said Andy Palmen, a Chrysler dealer in Kenosha, Wisconsin, expressing relief at GM’s decision to walk away from talks to acquire its smaller rival.

An employee at Chrysler’s head office added that “now people can get back to work knowing that their destiny is not in someone else’s hands”.

GM said on Friday it had concluded that a takeover would be a distraction from the more urgent task of shoring up its own dwindling liquidity. Chrysler is 80 per cent owned by Cerberus Capital Management, the New York-based buy-out firm, and 20 per cent by Germany’s Daimler.

According to a person close to GM, “the unions didn’t give it a positive sign, and it was a distraction from the issue of getting near-term financing”.

GM’s decision leaves Chrysler with few options and some big challenges.

Chrysler does not publish financial results, but there is little doubt that it is in much the same condition as GM, which warned on Friday that it will run out of cash in the first half of next year without a significant recovery in vehicle sales, substantial asset sales, improved access to capital markets or a government bail-out.

Moody’s concluded last month that “Chrysler’s ability to cover all cash requirements through 2009 may come under stress”.

Beyond the liquidity crunch, the ratings agency noted, Chrysler is handicapped by having few new small vehicles, currently the brightest segment of the US market, in the pipeline over the next two years.

Bob Nardelli, Chrysler’s chief executive, said on Friday that “as an independent company, we will continue to explore multiple strategic alliances or partnerships”.

Among the possibilities has been an expansion of its joint ventures with Renault-Nissan, including the development of a new small car for Chrysler.

Renault-Nissan officials have scotched the prospect of an outright acquisition, but left the door open to a looser alliance.

Chrysler’s minivans, where it remains the market leader, and its pick-up trucks could help Renault-Nissan broaden its North American product line-up. The Detroit News reported that Cerberus had also held talks with, among others, South Korea’s Hyundai Motor about a partnership or the acquisition of some Chrysler businesses.

Mr Palmen said that some Chrysler, Dodge and Jeep dealers have discussed a bid for the company. However, these talks have come to nothing.

Wherever these various initiatives lead, the chances of Chrysler remaining in its current form appear increasingly slim.

George Magliano, director of automotive research at IHS Global Insight, a consultancy, says that “Chrysler has to downsize and downsize dramatically”.

The company is already a pale shadow of the model that was envisaged in a “recovery and transformation plan” unveiled in February 2007.

That strategy called for the workforce to be cut by 13,000. In fact, almost 32,000 jobs will have gone by early next year.

Instead of closing only a Delaware light-truck assembly line at the end of 2009 and cutting two shifts at other plants, Chrysler is now idling two plants and has axed eight shifts. The Delaware plant will produce its last Dodge Durango sport-utility vehicles next month.

The next shoe to drop, according to several industry experts, will be a further consolidation of models and vehicle platforms.

According to an analysis by Grant Thornton, a consultancy, seven of Chrysler’s existing 26 models make up 56 per cent of its sales. A third come from just three models – the Dodge Ram pick-up and Chrysler and Dodge minivans.

Grant Thornton adds that only half of Chrysler’s 14 North American plants are “core” to its operations.

Meanwhile, Chrysler, like GM, is looking to Washington to ease its immediate financial strains.

Mr Nardelli said on Saturday that “we will continue to urge Congress and the Bush administration to immediately address the liquidity crisis facing the automotive industry”.

According to Mr Magliano, “at this point, it’s in the hands of the government. They have to do something, and do it fast.”

LINK:FT.com / Companies / Automobiles - Chrysler relieved after GM backs out
 
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