The automotive sales sector is in a major state of flux as consumers continue to run from SUVs and pickup trucks into smaller, more fuel efficient cars. One manufacturer hit especially hard by this transition is Chrysler, a company that recently posted the worst fleet average fuel economy numbers of all major automakers in the U.S. due to its truck-heavy lineup. Still, the automaker has built up a large supply of Chrysler, Dodge and Jeep utility vehicles that they have got to get off dealer lots somehow. To ease consumers into the fuel-thirsy utes, Chrysler has introduced new incentives of zero-percent financing for 72 months on the 2008 Dodge Durango, Chrysler Aspen and Jeep Grand Cherokee and Commander.
While the lack of any financing charges will certainly impact the bottom line, it is nothing compared to the losses the automaker has been hit with over its past lease deals. In fact, truck and SUV residuals are so bad these days that Chrysler Financial has gone so far as to completely cut leasing out of its available portfolio starting August 1. The financing deals announced today are scheduled to continue through Thursday, July 31.
As Chrysler moves ahead with its "consolidation strategy" (a.k.a. Project Genesis), it's apparently had enough foresight to realize that shutting down dealerships seriously handicaps your ability to service your customers. According to Steven Landry, Chrysler executive vice president of North American sales, the company's solution will be "stand-alone service stores" -- it is easiest to think of them as dealerships that have closed, but the service department still remains open.
While the first stand-alone service store is still about two years from opening its doors, Chrysler is in active talks with a handful of other retailers about the strategy with customer service as their goal. "If we all of a sudden go from 80 stalls to 40 stalls we don't want to do our customers a disservice," says Landry. "You need to have the right number of stalls." Funny, any woman at a professional sporting event could have told you that.
According to a German magazine referenced by Automotive News, Wolfgang Bernhard is expected to be announced as the Chrysler Group's chairman-in-waiting, pending DaimlerChrysler's sale of the automaker to Cerberus Capital Management. Currently Bernhard is an acting advisor, a consultant if you will, for Cerberus, and spends his days at Chrysler's Auburn Hills headquarters, presumably gathering info for Cerberus on what aspects of the business need the German exec's magic touch the most. When the sale happens and Bernhard officially moves in, the speculation is that current CEO Tom LaSorda will remain in his position and likely report to Bernhard.
Bernhard was formerly VW's brand chief, and before that he worked for Chrysler immediately following the "merger of equals" that resulted in DaimlerChrysler. Other former Chrysler execs are also advising Cerberus at the moment according to Automotive News, including the company's well respected former design chief Tom Gale. Hopefully the news of Bernhard's official return, when it comes, will portend the return of other key Chrysler execs that can aid the company's turnaround efforts.
Two years ago, the UAW gave some health care concessions to struggling GM and Ford in an effort to help the Detroit giants save billions of dollars and stay afloat. At the time, Chrysler was relatively well-off and so the union rejected a similar package for them. UAW President Ron Gettelfinger says that it's time to make up for that omission. Since 2005, the Chrysler Group went from a profit of $1.8 billion, to a loss of $618 million last year, and on to a $1.98 billion loss so far this year. Gettelfinger said a review of Chrysler's finances shows there's a problem that needs to be addressed, so talks are ongoing.
Last week we told you that DaimlerChrysler's Rüdiger Grube was heading to New York to visit with potential suitors for the Chrysler Group. And it appears he was a man on a mission. It seems that a close source has told news outlets that a sale could be wrapped up by as early as May. Although talks are ongoing and nothing is definite, it looks like at least one of the bidders has met the company's expectations in principle. Those bidders included Blackstone Group, Centerbridge Capital Partners LP and Cerberus Capital Management LP, as well as Canadian auto-parts supplier Magna International Inc. and private-equity firm Ripplewood Holdings Inc. After initial meetings, the final three appeared to be Cerberus, Blackstone and Magna.
Deals like this don't happen overnight, however, so even if a bidder has been chosen, it will take some time to dot the i's and cross the t's. And one slightly sticky point may remain. Workers' reps on the Chrysler supervisory board have reportedly been okay with a sale "as long as the buyer agrees to protect as many jobs as possible." That's a bit different than what UAW head, Ron Gettelfinger, said a couple of days ago. His words were a bit less supportive. Something closer to sale or no sale, UAW jobs were the most important thing. He also suggested he had the support of the supervisory board, of which he is a member. Equity partnership possibilities are also a potential stumbling block still. Since Kirk Kerkorian first brought that issue into the spotlight, other bidders have incorporated it into their proposals.
But billionaire Kerkorian's $4.5 billion bid is apparently still getting snubbed as well. Gettelfinger, who said he has met the bidders, said the UAW would reject any bid from so-called "strip-and-flip" investors. That seemed a thinly veiled slap at interested leveraged-buyout firms. The primary concern for the union is preserving jobs, which also explains why GM didn't ever have a real chance, according to sources. Of course, with a $1.5 billion loss last year, Chrysler still plans to cut 13,000 jobs in hopes of returning to profitability by 2008.
The Detroit News is reporting that a group of 25 Chrysler employees in Toledo have formed a group called the "Employee Buyout Committee" and are actively exploring the necessary steps required to see the fate of Chrysler end up in the hands of its employees. Their proposal would give Chrysler employees a 70% stake in the automaker, with DaimlerChrysler retaining the remaining 30%. The group appears to be making all the right moves so far, having submitted its proposal first to the UAW, whose legal department is now evaluating the proposition. The employee buyout plan was also mentioned at DaimlerChrysler's annual shareholder meeting in Berlin on April, 4. The committee's apparent spokesperson, Michele Mauder, has also sent the proposal to Chrysler Gropu CEO and DaimlerChrysler CEO Deiter Zetsch, humbly requesting the employee's bid at least be given equal consideration with bids from private equity firms like Cerberus Capital Management and Blackstone Group, as well as Canadian parts supplier Magna. A Chrysler spokesperson has also commented that the proposal is expected to be reviewed by the automaker's legal department.
If allowing Chrysler's own 50,000 UAW employees to own the automaker doesn't happen, the UAW has expressed that it would much rather thow its hat in the ring with Canadian parts supplier Magna than any of the private equity firms that have offers on the table. While the employee buyout plan is a long shot, and if successful, an incredible risk for the employees, it's also inspiring that a group of workers would be the masters of their own fate. Unfortunately, it's not yet known how much the employees could offer for a 70% stake in their employer, which, in the end, is likely DaimlerChrysler's number one consideration in this sale.
Looks like fears of a possible sale aren't scaring the product planners at Chrysler. Recognizing that the show must go on, the group announced a plan to build $1.78 billion worth of capacity over the next few years. According to this Automotive News piece, a new $730 million engine plant is a big part of that plan. The plant will be built in Trenton, Mich. and will concentrate on the production of the automaker's new range of fuel-efficient V-6 "Phoenix" engines. Also in the works are a new $700 million axle plant in Marysville, Mich., and a $300 million investment in the paint shop at their Sterling Heights, Mich. assembly plant.
Chrysler had actually announced many of these upgrades in February, when they pledged about $3 billion to build and revamp plants for the new engines, and the new investments don't change the fact that Chrysler is still planning to cut 13,000 jobs in their overall plan to return to profitability by 2008. New fuel-efficient engines and a renewed focus on cars is hoped to be the solution for record losses due to lower demand for the company's trucks and SUVs. Everybody loves the Hemi, but it ain't exactly a gas-sipper. As part of the new announcement, The Michigan Economic Development Corp. (a state agency) said Chrysler would be getting $11.2 million in tax concessions over the next eight years.
In an article that sums up nicely the current situtation surrounding the potential sale of Chrysler, the Detroit Free Press reveals that two DaimlerChrysler shareholders have called for the company to change its name by dropping "Chrysler" if the Chrysler Group isn't sold by March 31st, 2008. Shareholders Ekkehard Wenger and Leonhard Knoll have crafted a name change proposal that would insert the potential name change into the company's articles of incorporation at its next annual meeting on April 4th. Wenger and Knoll didn't hold back any punches in the proposal when speaking about the Chrysler Group and the perceived failure of this merger of equals:
"Maintaining a corporate name that evokes associations with the failure of the business combination with Chrysler is detrimental to the image of the corporation and its products."
"This is all the more true as unflattering nicknames such as Doting Daimler, Daimler-Crisis or even Crime-ler have long been in circulation."
"The disadvantages this entails for shareholders, customers and employees can only be borne at most for a short transition period until there is a proper separation from Chrysler. If a proper separation cannot be effected within one year, this would only serve to underscore the need to remove this affliction on the image from the corporation's name."
What does it say about the state of solidarity within your company when you have one half being referred to as an "affliction"? Not much. And while we don't read business trade journals in German over breakfast, we've never heard DCX referred to as "Daimler-Crisis" or any of the other nicknames mentioned in the proposal. Of course, now that we have, we'll have to start using them.
The Freep article closes by noting that DCX supervisory and management boards are totally opposed to the namge change, so don't expect them to be ordering new business cards anytime soon.
Another action group has set its sights on the auto industry, this time its People for the Ethical Treatment of Animals. PETA has the Chrysler Group in its crosshairs for a loose connection it maintains with the annual Iditarod Trail Sled Dog Race held in Alask, which officially starts this Sunday. Clearly PETA has a problem with using sled dogs as an engine for ground-based transportation over snow. We get that. What we don't get is why the organization is attacking the Chrysler Group.
Automotive News reports that Dodge actually sponsored the Iditarod for three years in the early '90s. Dodge backed off, however, in 1993 when Alaska's Dodge dealers group took over primary sponsorship of the event. The dealers dropped the sponsorship in 2003, and ever since Ron Udd, owner of Anchorage Chrysler-Dodge (a single dealership) has paid $300,000 a year to be the official sponsor.
PETA claims on its website that DaimlerChrysler is a sponsor of the 2007 Iditarod, which obviously is not the case, and invites its members to contact who it refers to as "DaimlerChrysler Corporation CEO" Tom LaSorda (Uh, that would be Dieter Zetsche, did you mean to say Chrysler Group CEO?). The organization conveniently has a page set up with a letter all written, all you have to do is type in your name and hit send. When did protestors get so lazy?
Regardless of your feelings towards the plight of sled dogs, PETA could at least put in the leg work to get its facts straight before it aims its gun of righteousness at the wrong target.
According to the Financial Times, General Motors has actually created a group to explore a potential purchase, alliance or other relationship with the Chrysler Group. Rumors have continued to persist that General Motors is interested in outright purchasing the Chrysler Group from DaimlerChrysler, but the fact that this exploratory group is headed by the same guy, Fritz Henderson (shown), who led the team that studied and eventually recommended against a possible tie-up with Nissan/Renault, adds more fuel to the fire. Of course, GM is still sticking to its original comment on the situation, which is that it regularly has discussions with other automakers on topics of mutual interest.
So far Hyundai, Volkswagen, Fiat and Nissan/Renault have ruled themselves out as potential buyers for the Chrysler Group, though reports have surfaced that at least four private equity groups are in preliminary talks with DCX concering a possible purchase deal. DaimlerChrysler CEO Dieter Zetsche has been quoted as saying that "all options are on the table." Just like it was with the exploratory group set up to study the Nissan/Renault deal, it will be months before Fritz and the gang will be able to provide a recommendation to GM.
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