Chrysler Submits Business Plan to Congress
By Chris Haak
The smallest of the formerly Big Three submitted its “detailed business plan” last to Congress, with word going out via e-mail to journalists just before 7:00 p.m. EST last evening. In terms of the immediate need for cash, Chrysler’s desperation situation seems to fall fairly close to GM’s desperation, with the company warning that it expects to have $2.5 billion in cash on hand on December 31, and that it is due to pay out $11.6 billion in cash during the first quarter of 2009 for wages, parts, and other costs during a period when vehicle sales are traditionally slower – and will be even worse in 2009 than they have been historically.
Chrysler’s request is for a $7 billion working capital bridge loan, with the money to be received by December 31, 2008. It expects to apply the money toward paying the aforementioned $11.6 billion in Q1 2009 bills, but unlike GM, is not calling for negotiations with debt holders, but does assume that the company will receive $6 billion of the $25 billion in “advanced technology” money to be allocated by the DOE as well as “a reasonable level of support and concessions from the company’s constituencies. The plan that Chrysler submitted was also fairly vague on exactly what the company plans to do aside from launching new products with a focus on improved fuel economy, reducing structural costs, and sharing platforms and components with various models and manufacturers. The company said that its internal analysis of the cost savings to be realized from an alliance or consolidation could result in $3.5 to $9.0 billion in “synergies.”
The full presentation document is posted on Chrysler’s media site (and humorously labeled “Proprietary and Confidential” at the top of every page) as well as several other materials for the world to see:
In the presentation, Chrysler attributes the bulk of its current troubles to the collapse in demand for light duty vehicles (with the annual selling rate falling from 16.2 million in 2007 to a 10.8 million run rate as of November 2008), the freezing of credit markets where companies like GE and Berkshire Hathaway have trouble accessing cheap capital in spite of AAA ratings, and the general global economic downturn. The presentation also fairly diplomatically mentions that as a part of Daimler from 1998 through 2007, Chrysler was not structured as a standalone company, but rather as just a component piece of Daimler’s larger empire. I’m sure that a lot of thought went into the wording of that section, since it’s possible that Cerberus will be suing Daimler at some point for selling a company that wasn’t viable on its own (witness the fact that Cerberus and Daimler publicly stated that they can’t agree on a price for the remaining 19.9% of Chrysler that Cerberus wants to buy and Daimler wants to unload).
Again, I find the different industry sales assumptions to be fascinating among the three companies. Chrysler’s baseline-worst-best case scenarios are more in line with Ford’s, while GM’s “likely” scenario of 12.0 million units seems far more optimistic than is likely to occur (Ford predicts 11.0 million as likely, while Chrysler is saying 11.1 million). In 2010, Chrysler is projecting only 12.1 million sales as likely, with Ford at 12.5 million and GM at 13.5 million. Interestingly, even in the doomsday scenario, Chrysler projects that it will have positive cash flow in all years except for 2009, assuming it receives the requested government assistance.
Finally, Chrysler spent a lot more space outlining why it felt that Chapter 11 was not a viable option for the company (pages 10-13) than did Ford or GM. The arguments are familiar, and solid: consumers won’t buy cars from a bankrupt automaker, debtor in possession financing will be impossible for the company to get from any entity other than the Federal government, DIP financing needs will be enormous ($17-20 billion), 53,000 of the company’s 55,000 employees would immediately lose their jobs in Chapter 7, and all assembly plants and parts depots – as well as thousands of suppliers – would be forced also into bankruptcy. Scary stuff, but it’s also very real.
My perusal of these presentations during the past 12 hours has shown different approaches that each company will take to ensure its survival. I’m most optimistic about Ford’s chances, although I believe that Ford will eventually need to tap a government credit line. Chrysler, in spite of having very little in the way of relevant products for the times we live in, actually seems to be in fairly decent shape financially once it gets past Q1 2009. GM, as I said earlier, needs a few miracles to pull itself out of its tailspin. They really are in terrible shape, and I’m not even convinced that a bailout will help them. With GM’s downside scenario, it will need $18 billion from the government PLUS concessions from its debtholders and the UAW. GM’s fate is not really in its own hands at this point, and that’s a terrible position to be in when you’re running a company.
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