AFSCME 3357-HOF'S BLOG

Chrysler to Return to Profitability by 2010?
. . . Yeah, right . . . whatever . . .

Thetruthaboutcars.com is reporting that Chrysler LLC's VP of North American Sales, Steven Landry, stated in an informal conference that Chrysler planned to return to profitability in about two years. As a private company under Cerberus, Chrysler no longer has to report earnings publicly, so this may be the best guidance we get as to Chrysler's health. Even so, folks have a right to be sceptical. Mr. Landry suggested that Chrysler would lose about a billion dollars this year, would break even next year, and would be profitable the year after that.

The only way I can see that happening is if Cerberus-owned rental car companies start buying a whole lot more Chrysler vehicles. I definitely can't imagine the American public doing so. As far as passenger cars go, only two relatively low-volume models are set to be introduced during that time, the Dodge Challenger and Dodge Journey. As far as trucks are concerned, a new Ram pick-up will be introduced within the next year, but it will be going against relatively new trucks by GM and Toyota as well as a redesigned Ford F-Series truck. The F-Series is Ford's do or die model, so Ford isn't just going to roll over and let Chrysler take market share. The Chinese-made compact has apparently not even been fully designed yet, so it's not in the two-year time frame. As far as upgrades to new models are concerned, the Phoenix V-6 engines will at best be available in limited quantities in 2010, and plant to produce efficient dual clutch automatic transmission is still being built.

If I were running Chrysler, I'd try to initiate talks with Hyundai for some sort of combination. Despite greatly improved cars, Hyundai has not had correspondingly increased market share. The problem may lie in a dealership network that is not prepared to satisfy a larger number of customers either at the sales or service level. Hyundai's affilliate, Kia, has the same problem, but to a greater degree. Hyundai's product line complements Chrysler's. Hyundai is competitive in small cars where Chrysler has no presence. Hyundai has a fairly fresh lineup of crossover vehicles. Chrysler doesn't. Even though it uses the same 4-cylinder engine as the Chrysler Sebring, the Hyundai Sonata is a clearly superior car now, and it's set for a well-received facelift early 2008. Chrysler does not have the presence in trucks and off-road vehicles that Chrysler does, and Chrysler has a superior dealer network.

An alternative for Chrysler would be work a deal with Nissan/Renault. Renault would like to sell cars in the United States. Nissan and Renault have competitive small cars. The Atlima platform is very competitive. Although Nissan trucks have their fans, sales have been disappointing, and the same goes for sales of the Nissan Quest minivan. Nissan has top-notch engine technology on the shelf and ready to go, and as such, by combining with Nissan, Chrysler can kill the Phoenix engine project and not miss anything. The downside to a Renault/Nissan deal is that CEO Carlos Ghosn may not be interested. He's interested in a deal with a US automaker, but Ford or GM could make better partners. Both have stronger model line-ups internationally than Chrysler.

To save what's left of Chrysler in its current form, Chryslerberus needs to act quickly. Even more questionable than the notion that the company will be in the black by 2010 is the proposition that it will only lose a billion dollars in 2008. With high fuel prices expected to continue, things don't look good for Chrysler's current gas-guzzling line-up. Cerberus has already been hit hard by the subprime mortgage crisis, and since it doesn't have a lot of capital tied up in Chrysler, I don't see it having the desire to tie up a lot of other capital to cover ongoing operational losses.