Cerberus Capital Management shot off a nine-page letter to investors outlining ways that Chrysler could sink, while also pointing out that they believe Chrysler's on the track for success. Some of the possible failure scenarios include a nasty recession, an extreme slowdown in the car market, or a further credit downturn. Credit is already looking green around the gills, and the potential for a widespread domino effect that starts with an implosion of the teetering mortgage business would be catastrophic for Chrysler Financial and GMAC, of which Cerberus owns 51 percent. As easy mortgages and equity go, so goes willy-nilly new car purchasing, and we're probably already seeing the results of that adjustment. Cerberus believes that it can weather a mild credit downturn, and even a mild recession, just fine. One way to attain success is to declare it, and changing the definition doesn't hurt, either. Cerberus optimistically declares that there's no need to be heroes to earn a good return on their investment. It sounds a little bit like they're saying it's okay to tread water. Stating that it's not necessary to build Chrysler up, even though that's the underlying hope, Cerberus thinks that just hanging in there should be good enough to earn a return. All of Chrysler's employees must feel great knowing that Bob Nardelli, Jim Press, and Tom LaSorda can essentially just keep the company coasting along until Cerberus sells Chrysler off so it can collect that mythical return. Chrysler's performance is so far outpacing expectations, and the company does have cash on hand. Those are actual, concrete good signs that Chrysler could yet emerge from its chrysalis.
[Source: Detroit News]
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Reader Comments (Page 1 of 2)
Steve_S @ Feb 19th 2008 9:49AM
Can it be any more obvious that this is a strip and flip?
Avinash machado @ Feb 19th 2008 9:54AM
Well if they sell Jeep to Mahindra, whom will they sell Chrysler and Dodge to? Jeep is the only brand with some value for potential suitors. Perhaps they could sell the entire Chrysler group to Renault-Nissan.
Chris @ Feb 19th 2008 9:58AM
Strip and flip, whatever. The fact is that merging with Mercedes is what killed Chysler. All the merger and bank lawyers and executives of both companies made a fortune with a short sighted deal.
Cerebus actually has incentive to keep it going whereas the former 3 star and 5 star executives didn't... all they needed to do is find some sucker to buy it and they did.
Oh, don't think the unions didn't have a hand in making Chysler into the mess it currently is in... they did but I just think blaming the new owners for what happens is unfair.
The product line SUCKS
Rocketboy @ Feb 19th 2008 10:10AM
No mention on if they design cars that nobody wants at the price that they are charging? Yes, I don't have the time to read 9 pages... but I would think that would be point number 1...."Reason Number 1 we could fail. Nobody wants to buy our products."
Soccer Mom @ Feb 19th 2008 10:14AM
Cerberus,
I am not interested in buying any divisions in whole, but I can offer you $100 for the right to the letter "J" in "Jeep" brand. I also can give you $50 for the old "winged" logo.
PJ @ Feb 19th 2008 10:16AM
This is a sad time to be a Chrysler fan. The 300 and Magnum had me all excited about a meaningful turnaround in 2004. Now their only hope is that a decent steward will pick up whatever's left after Cerberus jumps ship.
J. D. Billiford @ Feb 19th 2008 10:45AM
>>> Cerberus states in its letter to investors, "Some of the possible failure scenarios include a nasty recession, an extreme slowdown in the car market, or a further credit downturn."
Don't be fooled into thinking these scenarios are being directed at Chrysler alone. Both GM and Ford could face the same fate as both of those companies are also skirting along the edge of the cliff.
Unfortunately, short term thinking and just plain greed have placed the economy in this position. If Chrysler were indeed to fail, would the terrain to be covered by the other automakers be any easier?
Playdrv4me @ Feb 19th 2008 10:49AM
You should all be used to this Chrysler "death cycle" by now. This is one in a long like of many, and there will be many more to come.
For the record, the '80s were much worse than whatever fiasco is going on right now. The ENTIRE Chrysler group skated by literally on the back of the Jeep Cherokee and the Chrysler Minivans until it got its act together and began the cab forward era. It once again became the darling of the automotive press until yet again, it let its products wither on the vine through the early 2000s. Now we are back at the bottom of the cycle. Circle of life.
AZMike @ Feb 19th 2008 11:18AM
not entirely true. first, the lowly K-car and its many variants, including the minivan, are what carried Chrysler thru the 80's. Jeep didn't come on board until 1987.
you are right about several things. first, this recession is totally different. I was a Dodge dealer from 1983-1993, and can remember the prime interest rate being in the 16.5% range in 1983. an "A" tier customer would be paying about 17.9% interest for a new car then.
you are absolutely correct about the cycle that Chrysler is going thru. for all those who think Cerberus will fail, you're wrong. I seriously doubt someone like Jim Press would have given up his lifetime career at Toyota to jump on a sinking ship. you're just not old enough or just don't remember that this has happened before.
there is one big difference this time:$$$. when Chrysler hit the skids back in the early 80s, they didn't even know how they would be making payroll the next week.
once they received loan guarantees from the government (this was not a "bailout" as many believe; the government never gave Chrysler a dime), they made the company a lot leaner, just like they are doing now.
in 1982, they asked the workers to forgo wage increases, instead offering Chrysler stock, to be redeemed after 1985. two things happened: 1) Chrysler paid the bank loans back seven years early, and 2) the average Chrysler worker was now a millionaire, as their wage-concessions-turned-into-stock were now worth over 50 times more than their original face value.
Chrysler will rise again.
AZMike
Mal Fuller @ Feb 19th 2008 10:57AM
A nine page manifesto that details various avenues that will lead to failure? Now there's an exciting marketing strategy. I hope that the windows on the upper floors at Auburn Hills can't be opened.
MemphisNET @ Feb 19th 2008 10:58AM
Gah... this reminds me when I was a kid and saw my Grandpa on life-support.....
Just pull the damn plug already.... I can't stand seeing this kinda news every day :(
_Jon @ Feb 19th 2008 11:02AM
I have said from the appointment of Nardinelli that it looks to be a strip and flip, as it is referenced. He didn't do anything good for Home Depot.
But that letter is interesting - and telling.
I've researched the company recently - they've been buying US / American "traditional" companies at an 'interesting' rate. Quite a few firearms makers and some other hard-core lines. They don't seem to be interested in major profits, they seem to be content to hold this companies.
My initial reaction to the Cerberus / Chrysler deal was that a wealthy foreign investor wanted to have control of a US company to bring their products in. I haven't found any hard evidence of that, but that letter doesn't disprove it, either.
Consider that Ford sold First Nationwide bank because it was only providing a 14% return-on-investment (may have been 12%, memory is fuzzy there). But their (Ford's) goal was to get 15% ROI. They didn't get it, so they sold it because the money would be better spent on other thinks (like buying Jaguar & Land Rover). My point is that most US companies are interested in PROFIT. Pure and simple. An above comment used the word greed - good point. But Cerebus doesn't seem to have greed and profit in the list of objectives. That leads to the question of what is their goal.
clevershark @ Feb 19th 2008 11:22AM
Cerberus is a three-headed hound that guards the gates of hell, but it's a pretty dumb dog and easily fooled by a long-dead poet with a couple of handfuls of dirt. That says as much about Cerberus as one needs to know, really.
Playdrv4me @ Feb 19th 2008 11:24AM
AZMike pretty much hit the nail right on the head with a comment I've made before as well, and forgot to include this time...
Anyone who believes that Jim Press would have been STUPID enough to GIVE UP all he had achieved and a very likely lifetime of security with Toyota to jump over to a sinking ship is simply not seeing straight. It doesn't matter how much money was involved. Jim knows EXACTLY what he's doing, and so far, I'm liking alot of it. The new Dodge Ram by the way is an absolute HOME RUN.
I fully expect the fast-tracked interior revamp for the rest of the line-up to be JUST as impressive and high quality.
Bill @ Feb 19th 2008 11:27AM
Jeez, does anyone seriously think Cerberus bought Chrysler for anything other than selling off it's assets?
jamie @ Feb 19th 2008 11:31AM
Lee Iaccoca once said that in the auto biz...
You have got to lead, follow or get out of the way!"
Whenever Chryco was leading the way, they were winning. eg. Caravan, Town & Country, PT Cruiser, Charger, Magnum, Viper, Ram, Sprinter. You can add Challenger to that list here very shortly. Point is, there is a lot of unseen equity built up in the company that Chryslerbus is failing to capitalize on.
Nardelli (I hate to admit) is doing a lot of things right.
1. Buyout of all union employees.
2. Merge all Chrysler-Jeep dealers with Dodge.
3. Trim the manufacturing line to about 15 models.
Is Cerberus out to strip and flip? I thought so too.
However let me put it to you this way, Chrysler-Jeep-Dodge can be a major contender in the auto biz by this time next year, but only if it loses it's "loser attitude". Chryslerbus needs good leaders. Give me 90 days and I will turn this company around. No kidding!
The guy who wrote the letter should be canned. Okay, I can work with him too.
jw @ Feb 19th 2008 11:48AM
terrible products with nothing new in the pipeline..management sucks..dealers are the lowest scums of the earth becouse they have to cram these pieces of crap up there customers a--...i see no way out except china/india...
Frank @ Feb 19th 2008 12:29PM
jw,
Chrylser is introducing two new cars this year - the Challenger and the Journey, next year the all new Ram debutes. Last year the all new Caravan and Town & Country, and the Jeep Liberty and Dodge Nitro.
Chrysler's criticism comes from 4 vehicles: the Compass, Avenger, Sebring, and maybe the Nitro. Some of the others are marginal like the Aspen and Commander but they aren't terrible vehicles vis a vie their competition, they just don't sell in huge numbers and help drain resources from other projects, hence the culling of the models that's underway.
PJ @ Feb 19th 2008 1:57PM
Re: Chrysler’s product portfolio, I wouldn’t count on the Challenger or Journey to right this listing ship.
The Challenger’s value will be whatever halo effect it transfers onto the Dodge brand. In terms of sales, I wouldn’t expect a $30-50K, two-ton, 16 MPG 2+2 coupe to find a whole lot of takers. Mopar diehards will surely buy out the first year’s production run for over MSRP, but sales of such cars typically tank in the third or fourth year. The Camaro and revamped Mustang won’t help, as the muscle-car market will be spread far thinner than in recent years.
The Journey, meanwhile, inherits every one of its Avenger progenitor’s weaknesses. A high-volume three-row cute-‘ute is a good addition to the brand in theory, but in execution, the hard and sharp plastic interior, pinched seats, stiff ride, wobbly handling, and generally cheap feel of the product leave little reason for buyers to stray from the compact-ute establishment.
Of the existing Chrysler vehicles deserving criticism, I’d add the Caliber, Liberty, and definitely Nitro. Compared to their respective competitors, they really are standout worst-in-class products. Bear in mind, this is from someone who was really excited about Chrysler’s future a couple years back.
MemphisNET @ Feb 19th 2008 12:19PM
Just because you personally don't like a product (Caliber, Compass, PT Cruiser) doesn't mean they 'suck'. They are obviously filling in their niche quite well and sell well, despite our personal feelings.
I see Compass' all the time, the buyers love them. Maybe its a Canadian thing. I personally think the thing is fugly, but only because it doesn't hit the 'real jeep' button for me. The Patriot on the other hand is a great looking vehicle for what it is. The Caliber is ok too, but it's no Neon... and that's why I passed on it.