Chrysler, not GM, in biggest danger

[VenSeattle]

Analyst: Chrysler, not GM, in biggest danger
The Associated Press July 3, 2008, 3:58PM ET
Link to article

Faced with soaring gas prices, a sputtering economy and a rapid U.S. market shift away from trucks, the U.S. auto industry's weakest player, Chrysler, may have to file for bankruptcy or sell its storied Jeep and Dodge Ram brands as early as next year, JPMorgan said Thursday.

But rivals GM and Ford are likely to get through the rough patch and turn a profit in 2010.

JPMorgan auto analyst Himanshu Patel dismissed the possibility of an imminent bankruptcy at GM, saying in a conference call with investors and media that such fears "are completely overblown." The day before, GM shares slid to a 54-year low after Merrill Lynch auto analyst John Murphy wrote in a note to investors that a GM bankruptcy "is not impossible if the market continues to deteriorate and significant incremental capital is not raised."

GM shares rose 14 cents, or 1.4 percent, to close at $10.12 in abbreviated trading Thursday due to the Independence Day holiday.

Patel said the situation at Chrysler LLC is far more perilous because it has limited assets to raise cash and is more heavily reliant on trucks and on the North American market. Chrysler sales fell 22 percent in the first six months of this year.

Chrysler has had to release little financial information since the private-equity company Cerberus Capital Management LP bought it last year, but Patel estimated the automaker will burn through $4 billion this year and could be forced to file for bankruptcy protection or sell off parts of its business in the second half of 2009 if industry conditions don't improve.

Patel said it's difficult to predict the most likely outcome for Chrysler, but he said South Korean or Chinese automakers covet Chrysler's U.S. distribution network. A bankruptcy filing could be a hit to Cerberus, which invested $6.1 billion in Chrysler as part of its acquisition and also backed a $500 million line of credit that Chrysler tapped last month.

"These are untested waters," Patel said.

Chrysler spokesman David Elshoff declined to comment, but earlier this week, Chrysler President and Vice Chairman Tom LaSorda denied that Cerberus planned to sell Chrysler in pieces.

"Hogwash, absolutely not being considered at all," he said. "Absolutely no relevance. I don't even want to entertain those questions."

Patel predicted GM will burn through $18 billion in 2008 and 2009 as it struggles with depressed U.S. sales -- which Patel predicts will be at their lowest levels since 1993 -- and a rapid change away from trucks and sport utility vehicles. GM has $24 billion in cash and $4.6 billion in credit on hand, he said, so it doesn't need to raise more money immediately. But he predicted the automaker will try to raise another $10 billion in the third quarter of this year by mortgaging trademarks, international operations and other assets.

Murphy estimated GM needs to raise $15 billion and warned that cash is becoming increasingly scarce in the stressed capital markets. But Patel said GM shouldn't have difficulty raising the money.

"I don't think (lenders) are agnostic to the ripple effects of a GM bankruptcy," Patel said. "The argument that GM is too big to fail definitely works in its favor here."

Patel estimated GM will lose $6.9 billion this year and $4.3 billion in 2009 before swinging to a profit of $2.3 billion in 2010.

GM spokeswoman Renee Rashid-Merem said GM is confident it has enough cash to get through 2008 and has already announced several cost-cutting actions, such as idling four full-size truck plants and putting off the redesign of new trucks to focus on cars. She said the company is considering further measures, including obtaining more financing.

Ford, which mortgaged its blue oval logo and other assets in 2006 to borrow up to $23.4 billion for its restructuring, is in the best position cash-wise and can easily weather two years of a down market and swing to a profit in 2010, Patel said.

"Ford simply is not anywhere near as stressed on the balance sheet as GM is," he said.

Ford shares rose 6 cents to $4.42.

Aaron Bragman, an auto analyst with the consulting company Global Insight, said Wall Street's views on the Detroit Three vary widely because of the uncertainty in the marketplace. The companies' turnaround plans were based on the false assumptions that the economy would come back and gas prices would fall in the second half of this year.

"Everyone is tweaking their business plans," he said. "They simply need cash and they need time, and unfortunately there's a lot less of either of those things now than anyone had thought there would be."

Still, Bragman said bankruptcy is not a likely option for any U.S. automaker.

"The disruption to everything would be absolutely undesirable," he said.

[Satty]

If the Big 3 were a human body, Chrysler would be the appendix. It can stay, but why bother?

[CMG]

Hahaha

Too funny. Especially after the earlier posts.

[CMG]

Still, Bragman said bankruptcy is not a likely option for any U.S. automaker.

Here Ven, did ya read this? I think after your sensationalistic thread title it pretty well sums up the situation.

:AH-HA_wink:

You gotta do what you gotta do I guess......

LOL

[CMG]

If the Big 3 were a human body, Chrysler would be the appendix. It can stay, but why bother?

Kinda like YOU.

In this forum...

:AH-HA_wink:

[VenSeattle]

Here Ven, did ya read this? I think after your sensationalistic thread title it pretty well sums up the situation.

:AH-HA_wink:

You gotta do what you gotta do I guess......

LOL

.

I didn't contribute any of the sensationalism... that was the title of the article in Business Week. It's kind of funny that a day after my post in the other topic this article comes out and states where GM could come up with most of the $15 billion you were commenting on. Where can they find the money? Yep, overseas operations... duh...

.

It’s also funny that Autoblog mentioned today the same point I made last week…

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Most automakers are struggling with horrible US market conditions right now, but unlike competitors such as Toyota and Ford, Chrysler doesn't have sales in other areas of the world to fall back on… With sales down in the states by 28% in June, Chrysler appears to be in the most trouble of the Detroit automakers in the near term.

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Chrysler is in trouble and you can’t pretend that’s not the case. I agree with the articles coming out that Chrysler is in a worse position than GM or Ford. Chrysler's new RAM truck will not help matters… When are the LX replacements due - 2010/2011? Chery vehicles are 2-3 years off. What is Chrysler LLC to do while they cut models, trim levels, and idle plants? Well, Automotive News indicated yesterday that:

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Chrysler is trimming its new product budget, with only one major launch scheduled in each of the next four years. Such a schedule means Chrysler will trail its competitors.

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Some things to consider:

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Nardelli's comment near the end of 2007 -

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“Someone asked me, ‘Are we bankrupt?’” Nardelli told The Wall Street Journal. “Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with.”

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How much cash they had on hand at the beginning of 2008:

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Chrysler closed last year with $9 billion in cash, Nardelli told CNBC in an interview after the conference on Tuesday, adding that the company was "still in very good shape."

.

The above does not include the $2 billion just tapped. What if Chrysler does burn through $4 billion this year... does anyone know how much it would cost Chrysler to recover from bankruptcy protection?

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I can’t see a total of $11 Billion floating Chrysler LLC between 2008-2011 until the new Chrysler-developed products, Chery compacts, & Nissan-Renault deal start paying returns.

[Toyota.vs.GM]

There was no sensationalism contributed by me... that was the title of the article in Business Week. It's kind of funny that a day after my post in the other topic this article comes out and states where GM could come up with most of the $15 billion you were commenting on. Where can they find the money? Yep, overseas operations... duh...

You forgot some things:

Cerberus still must pay GM $4 billion on the sale of GMAC(November ,2008 and 2009.)

Hummer sale

The medium duty truck sale to Navistar

GM the 49 percent stake in GMAC to take a loan out.

GM has North America to take out a loan on.

[VenSeattle]

Of course. There are still sources within NA operations for GM to squeeze cash from. I was only indicating the international source which Chrysler doesn't have available. GM is bigger than the NA market... Chrysler LLC isn't.

It is an interesting point about Cerberus, GMAC, and GM.

[Toyota.vs.GM]

I can’t see a total of $11 Billion floating Chrysler LLC between 2008-2011 until the new Chrysler-developed products, Chery compacts, & Nissan-Renault deal start paying returns.

Oh, Chrysler Debt payments starts in 2010 .

[VenSeattle]

Oh, Chrysler Debt payments starts in 2010 .

That could be their saving grace... but GM and Ford have been predicted to return to profitability by 2010. I haven't read anywhere that Chrysler can or will.

With them burning $4+ Billion a year, Chrysler will still be bankrupt by 2010 without additional investment, spin-off, sell, etc.

[Toyota.vs.GM]

That could be their saving grace... but GM and Ford have been predicted to return to profitability by 2010. I haven't read anywhere that Chrysler can or will.

With them burning $4+ Billion a year, Chrysler will still be bankrupt by 2010 without additional investment, spin-off, sell, etc.

We agree on Chrysler .

[CMG]

Chrysler is in trouble and you can’t pretend that’s not the case.

ALL THREE DOMESTICS are in trouble, but you have blinders on.

:AH-HA_wink:

Chrysler doesn't have the same foreign markets to rely on, yet they also don't have the same massive debt as GM does.

They are BOTH in trouble. Different troubles, but both are in trouble. The American economy isn't in a position for the general public to be out buying new SUVs and V8 vehicles to bail them out.

The Camaro couldn't be coming out at a worse time, the Challenger was even late to the party..... Two cars that COULD HAVE made an impact will probably make a lot less of an impact on domestic sales because of the debut timing.

I have a feeling alot of "brand" guys will be wincing as the stories continue to come out about financial difficulties about "THEIR" brands.

I will be wincing about every domestic story, I'm a domestic car enthusiast.

[CMG]

We agree on Chrysler .

I bet WE don't agree on Toyota....

:AH-HA_wink: