Chrysler Continues Down The Black Hole
We've written of the pickup truck economy, falling vehicle sales and the state of the auto business over the life of this blog. While I remain long term bullish on the industry, I have also written it would not be unrealistic to see bankruptcies in the interim. Bullish on long term prospects does not necessarily translate into being bullish on a stock. This is something many professionals don't seem to understand. I could be bullish on the long term prospects of Intel in 2000 yet not be bullish on the stock as it fell in depressionary percentage terms. I did write positively of Ford's stock at one point then subsequently withdrew that bullish support while the stock was still in positive territory. This is no time to be a hero.
Along those lines, Chrysler just announced auto sales and they were again atrocious. With auto sales at Chrysler down 33% year-over-year, it is unique amongst major automakers in reporting larger drops in auto sales than SUV and pickup sales. Combine that with a product mix overly reliant on high ticket sales, SUVs, minivans and pickups and you have a recipe for a disaster in the making. We can thank DaimlerChrysler management for moving Chrysler away from being a low cost producer of affordable vehicles to the worst product mix of any major automaker on earth. Now, new management has to deal with the consequences.
We don't have a lot of insight into Chrysler's finances given the company is now private. Reasonably substantiated data shows that Daimler effectively paid Cerberus to take Chrysler after originally paying $36 billion to acquire the company. Given all of the costs incurred with Chrysler, Daimler would have come out better if they had simply thrown $50 billion into the Rhine. Or better yet, increased its dividend. It's an interesting aside that the CEOs who masterminded this master blunder walked away with hundreds of millions in compensation. All for losing over $50 billion.
The cash burn rate of any automaker is incomprehensible to most. The burn rate of an unprofitable automaker or an automaker with a large fixed cost footprint witnessing significant declining sales is a death march. Chrysler needs new product now. Because that is not the case, it must speed up any cost reduction plans in order to attempt to bring costs in line with declining sales. Or eventually cease to exist.
Back at the time of the buyout a spokesman for Cerberus was quoted as saying, "Our plan really is to provide patient capital to free management from quarter-to-quarter results and allow them to focus on a long-term recovery and transformation plan." That quote looks terrible today. It doesn't matter if a company is public or private, when sales in a capital intensive industry are this bad, it's not quarter-to-quarter results that matter but day-to-day.
Darker clouds are building over Chrysler. Can they move fast enough to transform their business? The economy isn't likely to support their efforts any time soon. That makes their effort much more difficult.
Along those lines, Chrysler just announced auto sales and they were again atrocious. With auto sales at Chrysler down 33% year-over-year, it is unique amongst major automakers in reporting larger drops in auto sales than SUV and pickup sales. Combine that with a product mix overly reliant on high ticket sales, SUVs, minivans and pickups and you have a recipe for a disaster in the making. We can thank DaimlerChrysler management for moving Chrysler away from being a low cost producer of affordable vehicles to the worst product mix of any major automaker on earth. Now, new management has to deal with the consequences.
We don't have a lot of insight into Chrysler's finances given the company is now private. Reasonably substantiated data shows that Daimler effectively paid Cerberus to take Chrysler after originally paying $36 billion to acquire the company. Given all of the costs incurred with Chrysler, Daimler would have come out better if they had simply thrown $50 billion into the Rhine. Or better yet, increased its dividend. It's an interesting aside that the CEOs who masterminded this master blunder walked away with hundreds of millions in compensation. All for losing over $50 billion.
The cash burn rate of any automaker is incomprehensible to most. The burn rate of an unprofitable automaker or an automaker with a large fixed cost footprint witnessing significant declining sales is a death march. Chrysler needs new product now. Because that is not the case, it must speed up any cost reduction plans in order to attempt to bring costs in line with declining sales. Or eventually cease to exist.
Back at the time of the buyout a spokesman for Cerberus was quoted as saying, "Our plan really is to provide patient capital to free management from quarter-to-quarter results and allow them to focus on a long-term recovery and transformation plan." That quote looks terrible today. It doesn't matter if a company is public or private, when sales in a capital intensive industry are this bad, it's not quarter-to-quarter results that matter but day-to-day.
Darker clouds are building over Chrysler. Can they move fast enough to transform their business? The economy isn't likely to support their efforts any time soon. That makes their effort much more difficult.
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