It May Not Be Bankruptcy, but Chrysler Deconstruction Inevitable

It May Not Be Bankruptcy, but Chrysler Deconstruction Inevitable

By Bill Visnic

President George W. Bush finally released the crucial billions needed to keep General Motors Corp. and Chrysler LLC around to see the new year, but with the real work just beginning, the wrenching save-Detroit soap opera seems to be grinding towards just one certainty: Chrysler LLC isn't going to make it.

If the maneuverings of the past several weeks haven't twisted the automotive Rubik's Cube enough for everyone to see the inevitable outcome, the reality is telegraphed loud and clear in the White House's "bailout" numbers: GM will bask in the holiday glow of $4 billion on Dec. 29, another $5.4 billion barely two weeks later and an additional $4 billion in February, for a total of $13.4 billion.

Chrysler gets $4 billion on Dec. 29. That's it.

There are the superficial responses about GM and Chrysler adhering to strict conditions and "strings attached" - Chrysler CEO Robert Nardelli was reported as saying, "We intend to be accountable for this loan" - but follow the money and it's obvious the $4 billion to Chrysler is little more than a fund to assure some sort of structured deconstruction for an uber-rich hedge-fund owner's broken manufacturing toy.

Longstanding Skepticism of Chrysler Viability

Chrysler's dissipation has been speculated almost since the day Cerberus Capital Management LLC acquired its 80.1-percent holding in August 2007 (former owner Daimler AG retains the other 19.9 percent). Most learned observers of the Detroit Three reckoned that even in a receptive market environment, Cerberus and its leader, auto-industry neophyte Nardelli, wouldn't be up to the task of making stumbling Chrysler competitive. Even adding Jim Press, long one of Toyota Motor Corp.'s most revered executives, to the management team did little to win believers.

As the bailout proceedings played out into a month-long saga, Chrysler become tacitly expendable, and its moves in the past weeks have done nothing to convince anyone otherwise.

First was open discussion in congressional hearings of whether Chrysler and GM would agree to "merge" as a condition of bailout approval. There also were the open questions from bailout skeptic Sen. Bob Corker (R-TN) and others -- rightfully raised -- about why bailout funds should extend to Chrysler when its silver-spoon hedge-fund owner isn't about to invest its own money to nurture its ill-conceived car-company investment.

Then in the week leading up to the White House lifeline, industry-analysis firm CSM Worldwide came out to say what's seemed like fait accompli around Detroit since the Daimler pull-out: The world - and certainly the limping domestic auto industry - would be better off without the financial-ethical distraction of privately owned Chrysler.

The CSM analysts concluded what seems the most likely course: a "controlled" dissection of Chrysler.

With GM getting three times the funding of Chrysler, that now seems the only logical course of action: $4 billion will deliver an orderly vetting process and an eventual auction. Only the most viable portions of Chrysler will be skinned from the company's cancerous bones: the devaluing Jeep brand and some Chrysler real estate and facilities.

The auto industry is immediately contracted into something approaching a more "sustainable" structure - no waiting for the unpredictable judgments of a perhaps-now-unnecessary "car czar" and less potential for the "putting good money after bad" that Congress and the President only now find distasteful after the vastly more reckless $700-billion Troubled Assets Relief Program (TARP) to preserve the nation's financial sector.

Dead Company Walking?

So it seems like the bill-paying public is the only participant not in on the news that the deal to decommission Chrysler already has been cut:

> President Bush said as much, noting that if either automaker can't get enough traction behind their life-or-death turnarounds, the funding buys time to get a real bankruptcy in order. Just $4 billion isn't going to get Chrysler anywhere in a first quarter of 2009 that is patently unlikely to present any kind of hospitable revenue-generating environment.

Unless more funding is forthcoming, Chrysler really has no other choice but to determine the best way to go away.

> On the day the bailout was announced, Cerberus Capital Management, 80.1-percent owner of Chrysler, seemingly set the stage for walking away from the operational side of Chrysler, saying in an oblique statement that it would "contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect the restructuring."

Cerberus also pledged $2 billion of "proceeds" from Chrysler Financial as seeming collateral for the $4 billion of White House bailout that ultimately is coming from the Treasury Department's TARP fund - although it's not readily apparent anybody was asking for such security.

The moves appear to signal what eventually will be a gambit to hand over ownership of Chrysler's hard assets in return for some type of favorable consideration to Chrysler Financial. Reuters subsequently reported Chrysler has hired advisors to "study a range of options," for how Chrysler can proceed, including sale of its Jeep brand and minivan lineup. Both have been widely considered the most valuable assets in Chrysler's underachieving product range.

> Dovetailing with Cerberus' financing maneuvering is the decision to shut down the company's entire North American manufacturing operations for a month, beginning last week. Some assembly plants have no product commitment beyond the models currently built, and speculation in Detroit is running high that many may never be restarted. The same is true for other furloughed manufacturing facilities.

In fact, Chrysler has no product in the pipeline beyond 2012. Last Thursday, the day before President Bush announced the loans to Chrysler and GM, the media was given a sneak peek at future products - ones hoped for release in the 2010-'11 timeframe. Clearly, it was done as an advertisement to a prospective new owner that Chrysler, indeed, has some promising new models on the drawing board.

> High-level Chrysler executives are heading for the exits. And so are most others.

Last week, Philip F. Murtaugh, who headed Chrysler's Asia-Pacific operations, and Deborah Meyer, Chrysler's chief marketing officer, burned rubber out of Auburn Hills for the classic other opportunities.

Murtaugh help construct GM's phenomenally successful operations in China. Chrysler lured Meyer away from Toyota, where she had headed Lexus marketing.

The Murtaugh and Meyer departures come within a couple of weeks of two other top-level executive exits. In mid-December, purchasing chief John Campi resigned because of health reasons and Chrysler said Simon Boag, vice president in charge of the automaker's Mopar parts division, was leaving for other opportunities.

Line personnel and executives alike are seeing little future for the ailing auto company, despite the federal loans. Thousands beyond what Chrysler had projected so far have accepted buyouts to leave the company.

Mapping An Industry Consisting Of The 'Detroit 2'

Days before the details of White House's half-hearted bailout became known, the CSM analysts spoke of the advantageous dynamics of the new "Detroit 2:" capacity utilization and flexibility will soar (thanks to, ahem, lots of shuttered Chrysler factories) as some two million or more units of vehicle-assembly capacity is removed from the manufacturing base of the now-Chryslerless domestic auto industry.

Although there still are chapters to unfold regarding the Detroit Three's near-term financial destiny, this page-turner of a book is coming to a close. But contrary to conventional dramas, the corpse in this whodunnit appears at the end - and that corpse is Chrysler.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.