Sunrise for the newly formed Chrysler Group?
There is good news of sorts for people trying to understand how the new Chrysler Group will revive itself going forward. The privately held company will have a display of vehicles as part of Fiat’s display at the Frankfurt Auto Show in September. There will be no press conferences, though, in keeping with the company’s external silence since it emerged from bankruptcy in June.
Chrysler Group LLCwas formed in June 2009 from an “alliance” with the Fiat Group, and produces Chrysler, Jeep, Dodge, Mopar and Global Electric Motors (GEM) brand vehicles and products. Observers note that it has been internally focused in trying to sort itself out since then.
Traditionally Fiat, Chrysler’s new owner since June, has a significant presence at the Frankfurt auto show through press conferences and media interviews. In addition, we would speculate that around this time it would be ideal for the Group to launch itself publicly. It needs to generate some positive momentum.
Chrysler has been unusually silent given its long standing flare for media events, publicity stunts and new model introductions. It stopped its long-standing monthly sales calls after it emerged from bankruptcy, cancelled a new model preview, and was absent from the Woodward Dream Cruise.
Jim Press, the chief sales executive who was brought in from Toyota, has not been out in public, except to defend the closing of 789 dealers in front of a critical U.S. Congress, leading to media speculation that he would leave the company by year’s end.
The company, of course will not comment on such speculation, but a spokesperson did confirm the self-imposed silence as the company establishes procedures on how it will run itself under what are five new owners with Fiat’s Chief Executive Officer Sergio Marchionne, also as CEO of the new Chrysler Group.
In addition, the newly formed nine-member Board of Directors is itself new, with three directors from Fiat, four directors appointed by the U.S. Government, one director designated by the Canadian Government and one director appointed by the United Auto Workers’ Retiree Medical Benefits Trust. Automotive experience on the board is scant.
Frankfurt Bound!
Unlike Ford Motor and General Motors Company, Chrysler, whose sales are off 42% year-to-date through July, has not announced any adjustments to its production since its plants came back online at the end of July, when it had only a 42-day supply of vehicles.
Chrysler’s position is thought to be tenuous at best by many analysts since its car sales are much weaker than average and large truck and sport utility vehicle sales have collapsed. New offerings with Fiat’s help are at least two years away. It is in essence a company built around three vehicle lines — Dodge and Chrysler minivans, the Dodge Ram pick-up truck, and the Jeep Grand Cherokee sport utility vehicle.
Therefore, the immediate challenge confronting Chrysler this fall is titanic. Before the Chrysler bankruptcy filing in March, the company had an average of $5,566 of sales incentives in play — roughly, 20% to 25% of the wholesale cost of a vehicle — and sales declined almost 50% anyway.
Chrysler doubled the rebates up to a possible $9,000 for qualified buyers under the now defunct federal CARS or Clunkers program, but it appears to have had a minimal effect since none of its vehicles has appeared in the top ten sales lists.
Marchionne has repeatedly stated that Chrysler needs to move away from the huge sales incentives that put it in — and keep it in — loss-making results. Full U.S. sales results for Chrysler are due at the beginning of September.
At the beginning of June, when Fiat formed a ”strategic alliance” with Chrysler, which effectively gives it control of the new company, some auto executives were still predicting that global markets would recover this year. With the exception of trade-restricted Asian markets, those hopes have now been dashed as first half earnings and predictions for the second half of 2009 come forth. While Clunkers did increase sales during the month it ran, automakers are still cautious about the balance of the year and expect annual sales to stay at a depressed rate of 10 to11 million.
The Chrysler alliance, with 4.5 million vehicle sales annually, makes Fiat the world’s sixth largest carmaker; behind number five Ford Motor Company. This is part of Fiat’s longer-term strategy to survive by growing bigger. From a scale point of view, and Fiat needs to be larger to survive, according to Marchionne, it might make more sense for the Italian company to pursue other companies rather than putting more money into Chrysler now that it has agreements in place.
What that means to American taxpayers who are holding 10% of Chrysler’s debt is unclear, but the company must become profitable to repay its loans and go through a successful public stock offering that Marchionne envisions sometime during the next couple of years.
Fiat can increase its stake in Chrysler Group from 20% to 35%, and ultimately to majority control once taxpayers are paid back under terms of the bankruptcy sale dictated by the U.S. Treasury Department, which has advanced about $15 billion in money to keep Chrysler alive.