As a Bailout Takes Shape, Chrysler Doubts Grow

The viability of Chrysler as a stand-alone carmaker is being increasingly called into question

On Dec. 8, Congress and the White House were working toward a proposal that, if passed, would provide $15 billion in bridge loans to the Detroit automakers to keep them alive until the incoming Obama Administration can put together a plan for their long-term survival. But even as Washington moved toward a bailout, there were growing questions about whether taxpayer dollars should be put into Chrysler, the weakest of the Big Three.

Politicians have not failed to notice that Chrysler's controlling stakeholder, the private equity firm Cerberus Capital Management, has not been willing to put any new money into the beleaguered carmaker. Cerberus essentially got Chrysler gratis from its former parent, Daimler (DAI), because the German carmaker wanted out of Chrysler and its huge health-care liabilities. And the new parent has been notably stingy ever since. "Cerberus owns 80% of this company and has cash—lots of cash—that they are unwilling to put into this company," Senator Bob Corker (R-Tenn.) thundered during hearings on Dec. 2. "We are being asked to do that."

Political awkwardness aside, the cash squeeze at Chrysler means the company has little in its near-term product pipeline—try three vehicles, a new Jeep Grand Cherokee SUV, a new Chrysler 300 sedan, and the Dodge Charger muscle car—coming out in the next year. None of these, incidentally, are gas-sippers, and they won't sell in the large numbers that they did a few years ago, says James N. Hall, principal of the auto consulting firm 2953 Analytics. What's more, the cash squeeze has pushed several other vehicles programs further out. A Chrysler spokesman said that the company has new models in the works, including several electric vehicles scheduled to arrive early next decade. Yet Corker said during the hearings that it's hard to see a future for a car company with few exciting new vehicles or technology. And that, of course, is why Chrysler CEO Robert Nardelli originally wanted to merge Chrysler with General Motors (GM)—a plan that went kaput in the wake of the financial and economic crisis.

the spoils of chrysler

Some members of Congress believe it would be better to let GM absorb Chrysler or let the company fail. GM and Ford (F) could get some of Chrysler's sales, they say. Maryann N. Keller, an independent auto analyst who sits on the boards of Dollar/Thrifty Automotive (DTG) and dealer chain Lithia Motors (LAD), says that about one-third of Chrysler's sales (about 600,000 cars a year) go to corporate and rental fleets. If Chrysler went away, she says, GM and Ford could split that business, which would help keep their plants running even as retail car sales plummet. That's a plant each worth of production. If Chrysler went bankrupt, GM and Ford could even buy the few plums, like a couple of Jeep plants, the Dodge Ram pickup business, and the minivan franchise. Despite a tough car market, those vehicle lines still have value.

With government bridge loans, Chrysler won't go bankrupt anytime soon. But that doesn't mean taxpayers will end up lending the company more money after Obama's inauguration. There continue to be rumblings of support for merging Chrysler with GM. Says Senator Robert Bennett (R-Utah): "If we agree that Chrysler is not a stand-alone company, and the combination of the two companies would save $8 to $10 billion a year, then we need to look at this."

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