Chrysler Is On Life Support

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.

Reader Comments

Steven Montes

November 19, 2008 12:43 AM

The three Auto Makers looking to be bailed out is absurd, and criminal. Their problems are self inflated, and well designed to cry wolf at a time the economy is at its worst. For God sakes car makers are glorified car salesmen , they deal in trickery, lies and desperate measures to con people out of their money. I can’t believe America can be so stupid, I thought it was time for change. I that we as a people said good by to stupid when we elected Oboma. From Steven Montes Owner of Montes Orthopedic.

Steven Montes

November 19, 2008 12:47 AM

The three Auto Makers looking to be bailed out is absurd, and criminal. Their problems are self inflated, and well designed to cry wolf at a time the economy is at its worst. For God sakes car makers are glorified car salesmen , they deal in trickery, lies and desperate measures to con people out of their money. I can’t believe America can be so stupid, I thought it was time for change. I that we as a people said good by to stupid when we elected Oboma. From Steven Montes Business Owner for over 20 years at Montes Orthopedic.

john

November 19, 2008 6:09 AM

The reason that all three of the Auto companies are in trouble and not just one or two of them is because they are all unionized. Let them go bankrupt (remove the unions) then offer government support for a large equity stake. I am for increasing the Minimum Wage, Worker Safety and other government programs that cover ALL workers and not just the select few.

John

frankloweser

November 19, 2008 7:17 AM

Detroit only needs two automakers. Let Chrysler go in an organized way that won't hurt the other two.

brian

November 19, 2008 8:26 AM

The big 3 are in trouble because of the banking industry meltdown. the Bush goverment thru 700 billion at this sink hole in a BAILOUT. 80 billion to AIG. T he big 3 are only looking for a LOAN not a BAILOUT.

Tom Pitts

November 19, 2008 9:10 AM

Your stupid frank! there is no way to "let chrysler go in an organized way" Plus all three are going under. GM is the worse off right now. And for steven, I'm curious to the amount of debt your in. Nobody really need orthopedics so when the economy goes south from dropping all 3 auto makers, whos going to bail you out when nobody comes to your practice? When they go out we all will feel the effects. Part makers, painters, machinist, not to mention 100000 jobs lost just from the 3 going under in the first place. And by the way, doctors are THE biggest rip off con artist I've ever seen. they shoud raise your malpractice insurance 600% for ignorance.
Bail them out, lose the unions, get pay checks back to blue collar pay scales and maybe these companies could get thier feet back on the ground. Company cost of $70 an hour per employee seems a bit high!

Nissan Bob

November 19, 2008 10:46 AM

Steve, judging by your grammatical errors, you're no genius. And, aren't there orthopedic companies that deal in trickery, lies and desperate measures?
You paint all dealers with a broad brush.

Kevin Jones

November 19, 2008 11:52 AM

Thanks Steven for your brilliant analogy. Let me guess, you're an intellectual rival of Jethro Bodine?

key

November 19, 2008 12:58 PM

Why don't they just take a pay cut to meet most of there bills. If eveyone in the company takes a pay cut it would help the bleeding company. Then they would not have to ask teh goverment for money. Honestly half of my pay check is better than no pay check!! I will get buy because at least I know I will have money comming in. Many people will not leave the company because the know how fragile the economy is right now and they need a job.

I am quite sure the CEO's if they did not get paid for a month or two they will still be able to maintain there way of living.

Mark Williams

November 19, 2008 1:21 PM

I am sometimes amazed at how many people will willingly vote someone else's job "off the island". Would those who want to kneecap union workers complain if their jobs (means of support) were declared worthless?

Jan R Smith

November 19, 2008 1:55 PM

Let all three go bankrupt, if that is the way it goes. They would be wise to declare bankrupcy while they have a few billion left. GM could reorganize into 2 divisions, Chevy & Cadillac. Ford could drop Mercury, and Chrysler could drop Dodge. Mercedes-Benz turned out to be not so dumb when it agreed to pay someone to take Chrysler off it's hands. There are at least ten times as many dealers as required. Sad, but they all cannot be sustained.

Patrick

November 19, 2008 1:59 PM

Steven Montes -- keep your idiotic opinions to yourself please.

dw

November 19, 2008 3:47 PM

is it the unions or management or consumers? consumers went on strike for reason, low wages. or falling wages.and while we can blast unions for high, cost why aren't we basting other too? and they have been giving back lots of late. so lets blame the workers. for making the wrong cars (the ones consumers bought in droves), or made those bad investment choices (like FIAT?). or not escrowing enough for benefits companies agreed to. well that sounds just like wall street, who like low wages (unless its for executives!) or unemployment. and why do we have this short term fixation by management? WALL STREET. and why are we in the fix we are in today? WALL STREET. maybe is time they get to walk the plank?

Doug

November 19, 2008 4:02 PM

Steven, thanks for calling us autoworkers stupid, your misspelled words shine a tremendous light on your intelligence. John obviously you must read the newspapers and adopted the familiar phrase that everything wrong with the world is because of Unionization. First let me explain, I'm not in a Union, I'm a management employee, but go pick up a history book and study working conditions before unions evolved. Twelve to sixteen hours a day in a death trap must be your idea of a good job. Unions didn't start because they were sharing the fat with the Rockefellers, Carnegies, Vanderbilts and others. No, it was because they were being shot at for complaining at the rate they were dying on the job. Sure, there are a lot of issues with Unions that need to be changed but to put all the blame at their feet is just plain ridicules. You both need to visit a modern US auto plant, you'll be quite surprised to find out they are similar to import automaker factories and in some cases better. Plus the foreign companies have newer plants, are in states that give them subsidies and are subsidized by there own governments as well, all major advantages that not one US Senator, Congressman or citizen will ever admit. The truth of the matter is, it's better to do business in the US if you're a foreign company than an American one. Of course, no blame is deserved for our government, they just pulled out the script from the late 70's and began to read from it. They sound so lost it's no wonder the economy is in shambles, we've become China's bitch, and the greatest empire on earth, the United States, is about to crumble. I guess that must be the unions fault too.

MarkL

November 19, 2008 4:10 PM

Why is Chrysler at the table? they are owned by a private equity company - why don't they go back to the private equity well?

and as far as the others are concerned, is the US taxpayer the only source of capital left?

David Burta

November 19, 2008 5:57 PM

Screw the Big-3, they're getting what they deserve...NOT SO FAST. It is easy to understand why many Americans and our Legislators want to hold these guys accountable and they probably ought to be held accountable. But at what cost to the rest of us. These companies are at the center of "A Perfect Storm" and weren't in best of conditions before that. First, the oil and gas spike over 18 months rendered their product mix all wrong (great hindsight, but if one looks back prior to that period large, gas guzzling vehicles were what was keeping them with their heads above water...Would you change your product mix under that scenario? Second, the Housing crisis had a hidden, but significant impact on sales with home equity drying up family's financial resources were progressively less available to secure or pay for a new vehicle...Sales steadily declined. Finally, the fiscal crisis removing 80-90% of normal credit for car purchasing was a knock out punch. NO INDUSTRY could survive these external factors...NONE, even if they were impeccably managed. So let's look forward. There has only been modest examination of "downstream" impacts of any of these companies going bankrupt (and most economists and financial analysts believe bankruptcy represents insolvency NOT reorganization no matter how one slices it). People selling popcorn in San Diego or watermelons in Maine will be affected (noticibly) and every man, woman, child, government entity (state, local and especially federal) will feel economically pinched (or worse) as the unravelling of the auto sector spills over first to their suppliers (who typically supply to more than one auto company) going under, to their employees being unemployed, not paying taxes and the economies of midwest states in dire circumstances.

The only solution is to NOT punish those who deserve it because the punishment on the rest of us is just too great. If they can bail out AIG (over 100 Billion) for economic stability then they MUST bailout the auto industry and THEN HOLD THEM ACCOUNTABLE!!!

angel

November 19, 2008 8:18 PM

Midddle class America has been under assault for the past 8 years. Anyone who desires that U.S. jobs disappear should be tried for treason. If the governing body can aid the bankers, then let them aid the people also. This is a loan request, not a hand-out people. Tell me the truth, do you commenters work for Toyota or Nisson?

Angel

November 19, 2008 8:29 PM

John, the few select pay union dues. That basically means that they pay for legal representation. That is what a union does. If you want the same protection, then UNIONIZE!

Julie

November 20, 2008 4:37 PM

Kudos to David Burta who is one of the few who understand the issue and the consequences of inaction.

Most people here are completely missing the point. The Big 3's over reliance on trucks isn't the cause of the problem. It's one of industry volume. US sales have contracted by about 30% this year and not one single domestic or foreign automaker saw it coming. Toyota invested hundreds of millions of dollars to build a fullsize pickup plant in Texas and it's been shut down for three months straight, less than two years after opening!

The Big 3's problem isn't quality and it isn't the product porfolio because if you take the time to review the facts instead of being stuck back in the 70's or 80's you can find plenty of safety and quality awards for Ford and GM in 2008 alone!

The Big 3's problem is three-fold. First, there are legacy costs because they are saddled with the union. They shouldn't have to pay a UAW worker $100,000 to leave their job and when a plant has to shut down to avoid over producing UAW workers shouldn't receive 95% of their pay, yet these are the exorbitant costs brought on by the UAW. Second, they only recently figured out how to profitably build small cars. Third, is simple...it's the economy stupid! Significantly fewer consumers can actually get approved for a loan to purchase a $20,000 vehicle.

A lot of the import automakers have leased acres and acres of property on the West Coast to store all the vehicles built overseas that are now arriving in the US, but they have no dealer orders for them.

Toyota has already adjusted their earning forecast down by over 50% and now they are being hit with a double whammy because the global economy is slowing down.

A few FACTS to consider:

GM offers more than 20 vehicles achieving 30 mpg or more on the highway. More than any other domestic or import manufacturer.

GM also offers 6 hybrid vehicles with two more due out before the end of the calendar year. More than anyone else.

For those who argue GM doesn't build vehicles people want, here's another FACT: GM sells more vehicles in the US than any other automaker!

Whether you buy foreign or domestic vehicles, take a look at what the stock market did yesterday and think about how much lower it will go when millions of people find themselves unemployed. If you think foreclosures are bad now, they will get much much worse. You may find yourself surprised at the impact it has on you as a small business owner (fewer people will go out to eat, get their hair done, go to the spa, pay for dry-cleaning, get their pet groomed, have their car detailed, etc.)

Wake up America....this is going to affect everyone!

Bob

November 22, 2008 9:40 AM

For all the people driving imported cars you have to wake up before it's to late. You are supporting company's whose only interest is making a profit for there respective country of origin. The bottom line is domestic auto's are up to par now with the imports and buying a imports shows a total disregard for your own interests and the interest of your country.

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