Posted by: David Kiley on November 18, 2008
Chrysler LLC will soon be operating on life support without a loan from the U.S. government. Based on revelations by CEO Robert Nardelli today in a Senate Banking Committee hearing, the automaker may fall below the amount of cash it needs to operate before the end of this year.
At the end of the third quarter, Chrysler had $6.1 billion in cash, but during that July-September period, it spent $3 billion more than it took in, Nardelli told senators questioning his company’s request for government aid.
According to one auto industry lobbyist who asked not to be named, Nardelli has told members of Congress privately that the company has “weeks not months” at the current rate of cash burn.
Nardelli seemed reluctant to reveal the current cash burn, or the company’s current level of cash. Chrysler is privately owned, and controlled by hedge fund Cerberus capital Management.
Nardelli and the other CEOs who testified today asking for loan help hurried out of the hearing room after four hours of questioning and testimony before reporters could follow up.
The CEO admitted to Senators: “We are in a very fragile position.”
The Auburn Hills-based automaker needs $4 billion to $5 billion per month to pay salaries, bills from parts suppliers and its other costs, Nardelli said. If Chrysler burned $1 billion in cash in October, it already is close to the top end of that minimum cash requirement.
An executive at one of Chrysler’s rivals present for the hearing said this: “The problem with legislators sometimes is that they think that even if they don’t pass something this week, the issue will keep. We are doing everything we know how to do to convince them this won’t keep.”
The executive said that if Chrysler fails, it will cause a chain reaction of problems at supplier companies that could significantly impact Ford’s and GM’s ability to maintain its own shrinking cash flow.