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More Chrysler

February 15th, 2007

Yesterday I argued that Chrysler’s problems, which resulted in an announced 13,000 lost jobs, are in this instance due to bad management and not their relationship with the CAW. Today, the Globe and Mail agrees:

“This could well be the last shot Detroit has, because it’s funding this restructuring by selling assets and borrowing against the remaining assets, and once that liquidity is used up. there will be no cushion left,” said veteran auto industry analyst John Casesa, managing partner of Casesa Shapiro in New York.

The third-largest Detroit-based company was a profit-spinning machine when it merged in 1998 with Daimler-Benz AG, but turned into a financial disaster in 2000 when its executives misread a slump in the market.

Remarkably, Chrysler executives made similar mistakes last year. They kept cranking out pickup trucks and sport utility vehicles that piled up on dealers’ lots as the price of gas soared in the U.S. market.

Note that they are a) borrowing to fund this reduction and b) have misread the market twice.

I remember in 2000 arguing with a manager that a slowdown was on, gas price uncertainty were causing consumers to put off buying decisions and why were we working Saturdays? I was told the present market slump was very minor, very temporary. By that January, DC was in crisis mode, and didn’t come out until the launch of the 300C and Magnum two years later.

Last spring it became apparent that DC had too much inventory in the field, yet they kept producing excess capacity. It took them 6 month to ID and start solving the problem. Even then, the reduction was half-assed at best, and my bet is the worst is still yet to come in terms of production slowdowns.

Finally, here’s what PETER M. DELORENZO has to say about yesterdays announcement (emphasis mine):

The fact that this company is still just now talking about common vehicle architectures at this point spells disaster for this latest turnaround plan – as in who has this kind of time in today’s auto market? As we said last week, we believe the Chrysler Group would be better off in other hands.

Forget about the hand-wringing and the speculation going on in the media about the state of Dieter Zetsche’s reputation as a super star auto executive, because we can tell you right now that Zetsche’s reputation is already the equivalent of burnt toast… This is the guy who will now have to face the fact that the management team he put into place prior to his departure for greener pastures has run the company right off of a cliff.

If we were the current upper echelon managers at the Chrysler Group, we would be planning our exits – graceful, or otherwise – right now. There’s no amount of sugar coating or dealer back-slapping that can mask the fact that your run in the business is over. You’ve left the company with too many of the wrong products, at the wrong time, and the kind of “instant” turnaround that the company is aching for isn’t even on the distant horizon.

It wasn’t too long ago that these (Jeep)guys were on top of the world with the Jeep brand; now they’re floundering around throwing anything and everything up against the wall to see what will stick, which means that they don’t have a clue.


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