Chrysler On Death Watch?
A week or so ago Chrysler announced a marketing plan to lock customers into gasoline prices of less than $3 a gallon for three years. There is a limit to the amount of gasoline one can buy so that you don't fill up all of your friend's vehicles. It seems many marketeers still believe gimmicks work on a wholesale level. Let's ask Honda. No, gimmicks aren't needed and don't work to any degree. Why can't automobile manufacturers simply price vehicles at a point that provides a fixed profit? Or, if they need to stimulate sales, as Chrysler surely does because their sales are down a staggering 30% year over year, why not simply provide a monetary discount? I'm disappointed that Jim Press, a former Toyota executive who is now the Vice Chairman of Chrysler, would approve this marketing program. Does this not smack of the stereotypical car salesperson shady deal instead of just giving you the best price?
The real problem at Chrysler is that their product mix is very unfavorable: big cars, pickups and SUVs. As some have pointed out with this plan, I could buy a car that gets 3 mpg better fuel economy, likely pass less for the car, and save the same amount of money as Chrysler's offer.
I wrote some time ago of my concern for American auto maker's ability to remain out of bankruptcy although I was long term bullish on GM and Ford. Ford, the company I wrote very favorably of when general sentiment was at its lowest is now producing results that bear favorability. Although their product mix is still unfavorable in North America that is going to change significantly over the next few years. GM still has significant issues including product mix and a large debt burden but has been the quickest to turn the corner on North American design. Unfortunately, most of the strong designs are in the wrong product mix. Each company is at different points in their recovery. But, they are becoming very capable competitors in North America for the first time in nearly half a century. Might I add, their turnarounds have nothing to do with the old ruse used by Detroit executives that wages must be cut and everything to do with finally getting some effective leadership.
Because of what I believe were many unsound financial decisions by Cerberus Capital, Chrysler's owner, coupled with a very unfavorable product mix, Chrysler is likely in the weakest position. I'm not sure if there is a Chinese wall (I'm referring to the business term not an off handed remark) or some similar form of legal barrier between Cerberus' other investments and Chrysler but as I wrote of quite a while ago, I am very bearish on private equity and the foolish investments they have made this cycle. Before this cycle is over I anticipate we will see a raft of private equity collapses, investment insolvencies or bankruptcies. Will other Cerberus messes negatively impact Chrysler's success? Their ability to access credit?
Additionally, GM and Ford also have vibrant international business with fuel efficient designs and expertise in building efficient vehicles. Much of this expertise is being used as a basis for new product launches and global design initiatives into North America. Chrysler has no such ability although they are trying to mitigate that via relationships with Nissan and Chery. Although with global nationalism and a backlash to the current form of globalization rising, I'm dubious of Chrysler's ability to convince North American customers to accept Chinese built cars en masse. If things don't improve at some point, it might be time to put Chrysler on death watch.
The real problem at Chrysler is that their product mix is very unfavorable: big cars, pickups and SUVs. As some have pointed out with this plan, I could buy a car that gets 3 mpg better fuel economy, likely pass less for the car, and save the same amount of money as Chrysler's offer.
I wrote some time ago of my concern for American auto maker's ability to remain out of bankruptcy although I was long term bullish on GM and Ford. Ford, the company I wrote very favorably of when general sentiment was at its lowest is now producing results that bear favorability. Although their product mix is still unfavorable in North America that is going to change significantly over the next few years. GM still has significant issues including product mix and a large debt burden but has been the quickest to turn the corner on North American design. Unfortunately, most of the strong designs are in the wrong product mix. Each company is at different points in their recovery. But, they are becoming very capable competitors in North America for the first time in nearly half a century. Might I add, their turnarounds have nothing to do with the old ruse used by Detroit executives that wages must be cut and everything to do with finally getting some effective leadership.
Because of what I believe were many unsound financial decisions by Cerberus Capital, Chrysler's owner, coupled with a very unfavorable product mix, Chrysler is likely in the weakest position. I'm not sure if there is a Chinese wall (I'm referring to the business term not an off handed remark) or some similar form of legal barrier between Cerberus' other investments and Chrysler but as I wrote of quite a while ago, I am very bearish on private equity and the foolish investments they have made this cycle. Before this cycle is over I anticipate we will see a raft of private equity collapses, investment insolvencies or bankruptcies. Will other Cerberus messes negatively impact Chrysler's success? Their ability to access credit?
Additionally, GM and Ford also have vibrant international business with fuel efficient designs and expertise in building efficient vehicles. Much of this expertise is being used as a basis for new product launches and global design initiatives into North America. Chrysler has no such ability although they are trying to mitigate that via relationships with Nissan and Chery. Although with global nationalism and a backlash to the current form of globalization rising, I'm dubious of Chrysler's ability to convince North American customers to accept Chinese built cars en masse. If things don't improve at some point, it might be time to put Chrysler on death watch.
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