AFSCME 3357-HOF'S BLOG

Nardelli Puts Chrysler Engineers on Double Secret Probation

According to Autoblog.com (where I borrowed the picture) via the Wall Street Journal (where I initially read the article)Chrysler CEO Bob Nardelli, aka Dean Vernon Nardelli, has put Chrysler Engineers on double secret probation after repeatedly turning out crappy products that are threatening the continued existence of the company. Apparently, Stephen Feinberg, the mysterious supervillian that heads Cerburus,is leaning on Dean Bob because the company that Cerburus got for free is going to lose over a billion dollars this year.$1.6 billion specifically. Unless Chrysler can come up with new products that don't exist, and/or single-handedly change the business cycle of the United States economy, Chrysler will lose similar amounts of money next year.

How bad is the Chrysler financial picture? Here's a quote from the WSJ article above that allegedly came from a meeting that Mr. Nardelli had with Chrysler employees:

"Someone asked me, 'Are we bankrupt?'" Mr. Nardelli said at the meeting. "Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with."

Wait, there's more . . .

Mr. Nardelli arrived to find Chrysler's vehicle sales and cost-savings efforts were falling well short of their targets. Some models had faults such as cheap plastic interiors and noisy rides. He learned that Chrysler badly lags behind on fuel-saving technologies and will have to spend billions to catch up. Worse, the mortgage crisis and slowing economy mean U.S. auto sales are likely to fall next year to their lowest level in 10 years.

And more . . .

He liked the new Jeep Grand Cherokee, but also saw Chrysler's product line had many serious weak spots. Riding the Sebring convertible, "I found the wind noise totally unacceptable and bordering on offensive at speeds of 80 mph," he wrote in a terse email to Chrysler's top designer, Trevor Creed. Griping about the cheap plastic of its interior, he added, "I sure hope that as we go forward, we don't punish the customer by thrifting the interior to meet a cost target."

The article also that there is a "crash program" to replace the Sebring, which has been a failure from day one. A 5 minute test-drive of the Sebring last year caused me to immediately sell my DaimlerChrysler stock, and in my opinion the Sebring may end up being the car that kills Chrysler. I have no doubt that the Sebring had some bearing in Daimler's decision to cut Chrysler loose.

Nardelli says it is important for Chrysler to sell assets to generate cash. The problem is that Chrysler only has what assets Daimler chose to give away to Cerburus in the first place. Nardelli hopes to generate about a billion dollars in asset sales even if those sales result in paper losses.

For those in my reading public with short attention spans, I remind you that Mr. Nardelli said that but for the $10 billion in assets that "investors" invested in Chryslerberus, the company would be bankrupt. In 2007, the losses will be $1.6 billion. In 2008, let's call it a billion. By 2010, according to the recently concluded UAW contract, Chrysler is supposed to contribute $8.8 billion to the retiree VEBA account. Where is that money supposed to come from? Where is Chrysler supposed to get the capital it needs for new product development? Sure, some product development money is budgeted from current revenue; but Chrysler's problem is that it has not been generating new product often enough, and those that have been entering production have not been good enough to stem the tide.

So, that's why Chrysler engineers are on double-secret probation. They've got to pull a proverbial rabbit out of their hat. Either they come up with a killer product in the next year, or Chrysler stops operating as an independent automaker.