Reality bites
01-10-2008, 11:16 AM
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Reality bites
[quote]Reality bites
Jan 10th 2008 | DETROIT
From The Economist print edition
Hopes that the carmaker would flourish on its own now look misplaced
A MORE fearful background to the annual Detroit motor show, which opens on January 13th, would be hard to imagine. Last year was one Detroit's “Big Three” would like to forget. Sales of cars and light trucks in America fell by 2.5%, to 16.1m, foreign brands grabbed more than half the home market for the first time in the second half of the year and Ford was overtaken by Toyota. Few doubt, however, that 2008 will be worse. With high oil prices and no end in sight to America's housing crisis, the consensus is that sales will fall to 15.5m. Both General Motors (GM) and Ford will struggle to keep their halting recoveries on track. And for Chrysler, the smallest of the Big Three, the next year could well determine whether it survives in its current form at all.
Five months after Cerberus Capital Management was handed the company (for nothing, in effect) by Chrysler's former parent, Daimler, there are growing fears that the acquisitive private-equity group may have bitten off more than it can chew. At a closed meeting with some Chrysler engineers last month, Bob Nardelli, the controversial former boss of Home Depot who has been appointed by Cerberus to turn the carmaker around, asked rhetorically whether the firm was bankrupt. The answer, he said, was “technically, no, but operationally, yes.” He added: “The only thing that keeps us from going into bankruptcy is the $10 billion investors have entrusted us with.”
When Mr Nardelli's remarks leaked out, he rushed to explain that what he had been trying to convey was a “tremendous sense of urgency” now that Chrysler was an independent company again. It lost $1.6 billion in 2007, but Mr Nardelli said he had Cerberus's full backing for a plan to return Chrysler to long-term profitability. And despite the difficult trading conditions, he said there could be a “significant improvement” in 2008.
The first part of that plan is to reduce capacity, given that sales and production have been inflated by supplying vehicles to daily-rental firms on ruinous terms, something both GM and Ford retreated from last year. This helped Chrysler sell 2.6m cars in 2007. But when Mr Nardelli arrived he discovered that the firm was basing its capacity on a sales target of 2.8m cars a year. So he set about cutting a further 10,000 jobs (beyond the 13,000 already shed under an earlier recovery plan), mainly by eliminating shifts and killing off four unprofitable models. He also hopes to generate some cash by selling off land, old factories and other assets.
That may improve financial performance in the short term. But insiders say things are far worse than they appeared when Cerberus took over. The new owners were surprised at the extent to which Chrysler's once-deep bench of managers, engineers and designers had been weakened by nearly a decade of German ownership. They have been working hard to put that right by hiring stars such as Jim Press, Toyota's former boss in North America, and senior engineers from Ford. Yet it should have been obvious that Chrysler's problems ran much deeper than those of its Detroit rivals.
So much to do, so little time
The new management team faces three main problems. First, as Mr Press (now Chrysler's vice-chairman) concedes, the firm is more exposed to the volatile and competitive domestic market than either Ford or GM. Only 9% of Chrysler's sales are outside North America, compared with over 50% at both GM and Ford. Mr Press says there are “a lot of opportunities for growth internationally”, but Chrysler's vehicles are designed for America; a tie-up with China's Chery has stalled.
Second, around two-thirds of Chrysler's sales are of trucks—the category hit hardest by high fuel prices. The third problem, and perhaps the most serious, is the lack of hot new product. Though the new Town & Co
Jan 10th 2008 | DETROIT
From The Economist print edition
Hopes that the carmaker would flourish on its own now look misplaced
A MORE fearful background to the annual Detroit motor show, which opens on January 13th, would be hard to imagine. Last year was one Detroit's “Big Three” would like to forget. Sales of cars and light trucks in America fell by 2.5%, to 16.1m, foreign brands grabbed more than half the home market for the first time in the second half of the year and Ford was overtaken by Toyota. Few doubt, however, that 2008 will be worse. With high oil prices and no end in sight to America's housing crisis, the consensus is that sales will fall to 15.5m. Both General Motors (GM) and Ford will struggle to keep their halting recoveries on track. And for Chrysler, the smallest of the Big Three, the next year could well determine whether it survives in its current form at all.
Five months after Cerberus Capital Management was handed the company (for nothing, in effect) by Chrysler's former parent, Daimler, there are growing fears that the acquisitive private-equity group may have bitten off more than it can chew. At a closed meeting with some Chrysler engineers last month, Bob Nardelli, the controversial former boss of Home Depot who has been appointed by Cerberus to turn the carmaker around, asked rhetorically whether the firm was bankrupt. The answer, he said, was “technically, no, but operationally, yes.” He added: “The only thing that keeps us from going into bankruptcy is the $10 billion investors have entrusted us with.”
When Mr Nardelli's remarks leaked out, he rushed to explain that what he had been trying to convey was a “tremendous sense of urgency” now that Chrysler was an independent company again. It lost $1.6 billion in 2007, but Mr Nardelli said he had Cerberus's full backing for a plan to return Chrysler to long-term profitability. And despite the difficult trading conditions, he said there could be a “significant improvement” in 2008.
The first part of that plan is to reduce capacity, given that sales and production have been inflated by supplying vehicles to daily-rental firms on ruinous terms, something both GM and Ford retreated from last year. This helped Chrysler sell 2.6m cars in 2007. But when Mr Nardelli arrived he discovered that the firm was basing its capacity on a sales target of 2.8m cars a year. So he set about cutting a further 10,000 jobs (beyond the 13,000 already shed under an earlier recovery plan), mainly by eliminating shifts and killing off four unprofitable models. He also hopes to generate some cash by selling off land, old factories and other assets.
That may improve financial performance in the short term. But insiders say things are far worse than they appeared when Cerberus took over. The new owners were surprised at the extent to which Chrysler's once-deep bench of managers, engineers and designers had been weakened by nearly a decade of German ownership. They have been working hard to put that right by hiring stars such as Jim Press, Toyota's former boss in North America, and senior engineers from Ford. Yet it should have been obvious that Chrysler's problems ran much deeper than those of its Detroit rivals.
So much to do, so little time
The new management team faces three main problems. First, as Mr Press (now Chrysler's vice-chairman) concedes, the firm is more exposed to the volatile and competitive domestic market than either Ford or GM. Only 9% of Chrysler's sales are outside North America, compared with over 50% at both GM and Ford. Mr Press says there are “a lot of opportunities for growth internationally”, but Chrysler's vehicles are designed for America; a tie-up with China's Chery has stalled.
Second, around two-thirds of Chrysler's sales are of trucks—the category hit hardest by high fuel prices. The third problem, and perhaps the most serious, is the lack of hot new product. Though the new Town & Co
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01-10-2008, 02:22 PM
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RE: Reality bites
In the past, Chrysler has temporarily restored its fortunes by conjuring up a sizzling new model just when it most needed one. It more or less invented the minivan in the 1980s, and the “gangsta”-style 300, launched in 2004, restored America's appetite for big saloons. There is buzz around the new Dodge Challenger, but the tyre-burning coupé will not generate enough sales on its own to make a difference.
01-10-2008, 03:03 PM
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RE: Reality bites
I agree. They're the typical doom and gloomers.....this thing will sell like hot cakes and if this proves true, they might do well to revisit some other models from years past. And...maybe have some stripped down value racers to boot.
Oh, please let this happen!
Oh, please let this happen!
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01-10-2008, 08:06 PM
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RE: Reality bites
And another thing, I fail to see how the 300 is "gangsta". It's more of a classy car, catered to those with a little more money, along the same lines as a Cadillac or a Lincoln. Maybe not as upscale, but still a luxury car, and definitely not "gangsta".
01-11-2008, 06:26 AM
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RE: Reality bites
I just saw a Chrysler commercial featuring some "gangsta" 300s in it. The cars had 24's on them, custom paint, lambo doors. The commercial was saying something like the 300 is the perfect canvas to express yourself. And this was a legit commercial from Chrysler. Anyone else seen this??
01-11-2008, 11:18 AM
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RE: Reality bites
HeyItsWes, right on dude. I've heard the Baby Bentley monicker (and Bentley's ain't exactly Gangsta). I think it's a classy looking car with a lot of potential for expression. I haven't seen the commercials, but it makes sense as much the PT Cruiser becoming the Automotive Expression media...why not with the 300. I mean, it can go in a lot of directions, and I've seen'em pimped up, but still....you could do some very subtle things that would make it go in a more refined direction. Stainless Smooth Platter Wheels, Racing/Forrest Green with Cream Interior....
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01-14-2008, 01:38 PM
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RE: Reality bites
The 300 IS a gangsta car. It starts as a classy sedan, but it's clearly the canvas for a new generation of customizers. Seems to be the car of choice for the newly rich young american male. Right after the Escalade.
01-15-2008, 03:02 AM
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RE: Reality bites
The 300 is what the owner makes it. Sad but just wait and see what some will do to the new Challenger and call it their own ride
Seems like over the top has taken the place of subtle changes. Too bad, I remember when small enhancements to a car made all the difference in how it looked. Its an art to know how much is too much. The factory did a good job and its up to us to make it our own. I hope most just change a few things and keep the car in its awsome state. But others will go over the top and have a Chip Foose moment, then they will post it and wonder why its made fun of. Too much is not good, know when to say when
Seems like over the top has taken the place of subtle changes. Too bad, I remember when small enhancements to a car made all the difference in how it looked. Its an art to know how much is too much. The factory did a good job and its up to us to make it our own. I hope most just change a few things and keep the car in its awsome state. But others will go over the top and have a Chip Foose moment, then they will post it and wonder why its made fun of. Too much is not good, know when to say when