Why does Chrysler need to be sold by November 4?

Here is my theory: the goal is not to sell Chrysler by November 4.

It is to sell Chrysler on November 4.

First, let’s describe the paranoid version of this deal:

General Motors will, under duress (including Cerberus’ abuse of GMAC to deny loans to most GM buyers) trade its share in GMAC and some stock for America’s former #2 automaker; most expect 40,000 layoffs to be made almost immediately, with 100,000 lost jobs when the dust has settled (including suppliers). Wal-Mart and McDonald’s can’t absorb that many people in a single year.

The idea is to take extra capacity out of the American market. That is, domestic-company capacity. Foreign companies are building North American capacity. Don’t expect shutting down a few GM and Chrysler plants to be a long term fix.

Many expect this deal to be subsidized by tax dollars: either GMAC will be handed over to Cerberus and then “bailed out” by the American government, or the Fed or Treasury will make a big loan to GM to allow it to buy Chrysler, or both.

Very, very few people like this scenario. It involves Cerberus getting its usual massive profits and everyone else getting something entirely different.

If you were going to do something like this, when would you do it? On an ordinary news day? Or, perhaps, on the day of one of the most highly contentious elections in our nation’s history?

Months of mud-slinging and lies have led us to this election. People care. Hundreds of thousands of people (perhaps millions) registered to vote in this election, who have ignored other elections. They care. They love or hate Obama and McCain and will be focusing on the results.

Even if the voters had time for GM and Chrysler and their taxpayer dollars being channelled into billionaires’ pockets, the news media would not cover it. They have no time for anything but minute-by-minute sounds bites, analyses, and statistics. Election night coverage has time for one thing: the election. There is no time on election night for substance; it’s all about who wins, who loses, and public-relations or self-serving commentary about why one candidate or the other is leading.

In short, according to this scenario, the taxpayer-subsidized sale of GM to Chrysler is too odious to have on a night when people might notice.

Now, here’s the “Allpar exclusive” rationale… not that I’ve read any explanation similar to the “busy news day” theory anywhere else.

There are people who have told us that GM is not really buying Chrysler so much as Cerberus is buying GM. That is, there will be a GM takeover of Chrysler as far as the public is concerned, but the money men pulling the strings will control it, and the Chrysler crew will have the balance of power.

In that scenario, Bob Nardelli would end up on top or #2 under a figurehead. (If he ends up with the combined company at all, it’s almost proof that GM isn’t really buying Chrysler. Regardless of what he’s done in the past year, his reputation from Home Depot is hard to shake.) That would allow Cerberus to do anything they wanted to Chrysler, including dropping the Chrysler name, which I personally see as inevitable now. That’s why this scenario would be spun as a GM buyout: otherwise, there would be a reaction among employees and enthusiasts to, say, Chrysler brand being dropped, the 300C going away, various factories and traditional mainstays shutting down (Jeep Liberty, I’m looking at you.) Or the Daimler plan to make Dodge the truck/muscle brand and Chrysler the car/minivan brand (which I still find absurd).

Again, the less analysis of this deal, the better, as far as Cerberus is concerned. Hence, November 4 as the perfect day to finish the deal. The news cycle would be overload with minute-by-minute rehashing of unimportant details and moment by moment coverage of the horse race.

Frankly, no matter what deal is made, I can see Cerberus wanting to have it on the busiest news day of the year (barring a major terrorist strike, which I don’t think they can predict accurately. Oops, I shouldn’t have put that idea into anyone’s head.) If they do an equity trade with Nissan and Renault (my favorite scenario, as it would impact American jobs the least), some would probably object. Even if they didn’t object, Cerberus loves its privacy and avoids the public spotlight. Even if they were making a really good deal for all Americans, which for all we know they are, they’d probably want less said about it. Especially given the media’s recent remarks about Chrysler and GM in general.

So my theory about the November 4 deadline is that it is about the presidential race, just not the way most analysts have claimed — it’s about using the presidential race as a way to limit the number of articles, column inches, and, most importantly, people paying attention, as Chrysler enters another phase of its (non)existence.

Fallout for Chrysler from Cerberus and GM

General Motors and Chrysler may or may not merge. At this point, though, both will be weaker from the rumors that have been flying.

Analysts and journalists have been fairly unanimous in their belief that neither company deserves to live. The jobs of tens of thousands of people - hundreds of thousands when suppliers are added to the mix - are irrelevant, apparently, to those who deal in the financial world.

Chrysler has been almost universally described as having nothing of value but Jeep. Even the Chrysler Technical Center is leased. The Chrysler and Dodge brands are generally seen as worthless; those who know better referred to the upcoming V6, which has not yet reached production, as being inferior to just about anything made by just about anyone else.

At Chrysler, the dual-clutch automatics appear to have been dropped - or maybe just the factory was. Maybe Chrysler is planning to use excess GM capacity to build it. Hard to say — they’re still working on the Phoenix engines after reportedly/possibly dropping one of the factories.

General Motors was not treated much better, and now stories are flying around about who will take over GM. Will it be Volkswagen? Hyundai? Tata? There is now an assumption that GM cannot survive all by itself. Thanks to that assumption, GM might not be able to survive alone. Financiers are very good at making assumptions come true. (Remember how they were all dead certain DaimlerChrysler was a great idea?)

Chrysler… is pretty much a goner at this point. Cerberus can’t get its credibility back when they talk about being in it for the long haul. They showed what they really thought with this one. Pete DeLorenzo turned out to be right after all, at least about their eagerness to leave the deal with Daimler; on the other hand, I think their motivation is not fear of the auto industry, but their desire to get their hands on GMAC, and then get a fat bailout as payment for taking so many Party rejects on board.

There’s still a possibility we’ll get a GMopar. The current administration could arrange the financing; the Fed and Treasury are happy to print money for their friends. Sweetheart deals with these people would not be much of a problem since they’re not burdened by the same rules as ordinary mortals. The government has already said it would loan money to corporations if they had good balance sheets; this could be an exception. Politically one has to wonder about spending billions to eliminate tens of thousands of jobs, but a lame duck president and his probably-lame-duck Treasury and Fed officials might not care. A disaster to the United States - well, sure, but so what? There are plenty of nice apartments in Dubai.

Excuse me if I’m reaching here. I know I’m talking “what ifs.” My hope is that by talking about the “what ifs” with our Congressmen and Senators, they will not become reality. One senator has already called for the government to fund GM’s “rescue” of Chrysler (which I’m sure would end up like the “rescue” of Chrysler by Daimler.) People can actually suggest this with a straight face.

As for the future, again, Chrysler is gone. We have had a self fulfilling prophecy, so to speak. One moment the financial and business-reporting world was fine with Chrysler running under Cerberus, believing the claims that it was a long term arrangement; Jim Press would surely not knowingly lie to us. (As far as I know, he hasn’t.) However, it’s hard to still believe that now, and all the stories and speculation and snide remarks about Chrysler’s uselessness and lack of assets will both make it inevitable that the company be sold - and equally inevitable that it will be sold more cheaply than it would have before.

It seems sad that, a mere year after celebrating the exact same events happening to Daimler, we’re back to where we started - or far worse off. I still remember the euphoria of freedom from Daimler - and the crushing blow of Bob Nardelli taking over on top, with his Campi friend sabotaging suppliers. The roller coaster continues, with a few structural supports missing.

What’s missing from the GM-Chrysler coverage

I remember when the analysts desperately wanted Apple to die… because they’d been predicting it so long. You couldn’t open up a mainstream mag or paper without seeing the weekly or monthly “Apple to disappear” or “Apple to merge” or “Apple to be bought by ___ and disbanded” article not unlike the current “GM will buy Chrysler to eliminate a competitor” nonsense. (Incidentally, despite Apple’s insanely large cash hoard, which I believe would buy both Chrysler and GM, I’ve already read two recent speculative articles that Apple will die because of the bad economic times.)

No article I have seen mentions the CTC - except those who assume it will be shut down. They don’t have a clue. (They also don’t have Bob Sheaves and others to give them a clue, apparently.)

No article I have seen suggests that maybe, because the Dodge trucks are clearly superior (especially in Class 3-5), that GM might shift over to Dodge’s designs. Only one mentioned the Dodge trucks in any way other than “to be canned” at all, and that was to point out the bad timing of their launch. Ford’s big, trucklike Flex, Toyota’s Tundra (with one factory already being converted to other uses), and Ford’s upcoming F-series were apparently examples of good timing.

No article I’ve seen mentions the Hemi except disparagingly, as in “dummies make V8s when people don’t want them any more.” (Four years ago.) Never mind that trucks still need V8s and the Hemi is best in class, especially in variable cam form. 

No article I’ve seen mentions the Phoenix engines or the dual-clutch transmission technology. The latter, to be fair, appears to be dead at the moment, as Chrysler chose to cancel their launch by picking a fight with Getrag and abruptly canceling all talks.

No article I’ve seen mentions the possibility that maybe GM would keep the Dodge and Jeep brands alive, and drop Pontiac and/or Buick. I really don’t think the Chinese will care if Buick disappears from the United States, honestly. Nor do Americans still seem to think of Pontiac as the sporty brand, despite the G8, which could live on as the Dodge Charger. Or not. 

To be fair I have not yet seen coverage from Fortune, whose main auto guy is a real thinker. Pete DeLorenzo is very bright but also very angry and that, I think, colors his thinking to the point where he can’t imagine any scenario other than Cerberus trying to back out as quickly as possible. (And to be fair to Pete, I suggested the “Cerberus just wants all of GMAC because they have the political connections to get all its lousy loans converted into government-backed assets, at no cost and with no conditions” scenario last week. I was shot down because the articles said that GM/Chrysler negotiations had been dropped due to bad economic times. Apparently, though, the latter rumor was untrue; they’re pushing to have it all done before the next election. I wonder if that’s so GMAC can get bailed out before the new president takes over in January; the public won’t associate McCain or Obama with Bush’s administration’s actions.)

DeLorenzo, incidentally, implied that GM itself might have to be taken over. This theme was also taken up by a friend within the industry, who is very well connected. He suggested, as noted in a prior weblog entry, that 

The fact that the news writers - or armchair speculators, your choice - have not brought any of these things up greatly diminishes my respect for them. It should also make you think twice the next time you see a rumor printed as fact, a bunch of denigrating comments thrown in for no journalistic reason, or a quick sarcastic blow-off closing line from a popular weblog. The truth is out there, but as the Pew Foundation noted, you won’t get it if you stick to one media source - no matter what that source is. Like scientists, informed citizens need a variety of opinions and perspectives to triangulate on reality. 

So don’t assume GM will swallow Chrysler, dump Dodge, and then disappear itself. Even if it’s pitched as GM taking over Chrysler (so they can keep some executives as figureheads, or so they can more easily shut down Chrysler factories and vehicles and the Chrysler brand itself — which might be the least valuable brand in the entire GM and Chrysler franchise, given how much it has been associated with bailouts, Daimler, and takeovers), it might not be that way. Cerberus owns Chrysler and it may soon control a large enough chunk of GM to call the shots, even as its spokesmen profess helplessness - or, as they prefer to do, remain silent, and allow pundits to cover the wrong game.

What will stay and what will go?

This is just my opinion based on current reports. There might be more new vehicles to replace the ones I’m counting as living. My guess is that the Caliber, Patriot, and Compass might all be dropped and Belvedere closed when the China-cars come online, unless they replace them all with entry-level cars or some new segments - but I think future cars will come from cheap-labor markets. (Though the falling dollar might ameliorate that - the question is, are people chasing low costs or following dogma?)

Note that if we look at the cuts the following way, they don’t seem so bad. I’m also expecting a Scrambler pickup, so Dakota might disappear to make room for that. Durango and Aspen might both go away if every dealership has all brands.

This leaves more than the normally stated 30 models, but of course Chally isn’t on sale yet. Your comments on revisions would be appreciated.

Most scary to me is a rumor that more engineers are going to be laid off. What’s the point in flexible manufacturing if they won’t pay for cars to be engineered and built?

Dodge

Chrysler

Jeep

The three-headed dog of Chrysler (updated)

Cerberus has apparently taken its image as the three-headed dog guarding the entrance to Hell (from the demons within) to heart, as they’ve put three different heads in charge of Chrysler.

At the very top is Bob Nardelli, who has taken a bunch of his old pals from GE and Home Depot and installed them in various spots; his past showed a preference for moving production to China, stripping out product and service quality, and slashing prices. So far we’ve seen the first and last of those - prices are being cut by bundling more freebies with the cars, and many parts purchases are indeed moving to China, with India being established as a tertiary engineering base after the U.S. and China. That said, he was also known for yelling at employees and being less than easy to get along with, while at Chrysler he is now known for listening patiently and trusting the opinions of those with experience and knowledge. He’s a tough one to figure out, but his pals seem to have kept their predilections for cheap-labor outsourcing.

The next head is Jim Press, whose tenure at Toyota was marked by hounding the massive Japanese automaker into having a substantial U.S. engineering presence which essentially customized Toyotas for the American market, not unlike the work of the Australians in getting Valiants into shape for the land down under. Press’ efforts, if other writers are accurate, brought us Scion, Lexus, the American version of the Camry, and the Avalon, not to mention the new Tundra, which if nothing else is giving American automakers fits - and that’s before the heavy duty and diesel models appear. It’s hard not to respect Jim Press, and not just because Toyota earned its success in the United States with likable vehicles that generally get better mileage than their peers, generally appear at the top of quality charts, and generally satisfy their customers. He’s just a likable guy - he seems much more natural than the average auto exec, more approachable and more human, less tightly scripted, and far, far, far less arrogant.

Finally, we have Tom LaSorda, who you just have to respect for the way he’s brought manufacturing plant technology ahead of nearly all competitors, while simultaneously going back to the future in plant management. The use of empowered work teams is so counter to anything Detroit has done lately, (aside from Chrysler in the early-to-mid 1990s, of course), and so counter to the Mercedes method of “Men in White,” that you just have to admire him for getting it done.

These are the three men in charge, and there’s bound to be some real, elemental conflict. Press wants quality above all else - quality being defined, presumably, as nothing going wrong for the owners. I think Press would be happy to lose money five years in a row if he could get reliability to where he wants it, knowing that he’d be paid back in profits when Chrysler didn’t need discounts or fancy styling to get customers. He quite probably wants Chrysler to be the default choice, as Honda and Toyota are now.

At the opposite end of the spectrum is Bob Nardelli, who has pretty much proven he likes short-term profits above all else. Perhaps he’s changed now, but we have no evidence of that other than numerous speeches, and I for one don’t believe what people say if I haven’t seen what they do yet.

It’s hard to say where Tom LaSorda, the one guy who actually came from Chrysler, fits into all this. I think he’d probably rather work with Jim Press than Bob Nardelli, but for all I know he was relieved to have someone else take over. Not everyone wants to be highly visible. LaSorda seemed to get along with the Stuttgart crew, and he seems to get along with Cerberus crew. Is he very friendly and flexible, or a yes-man, or just a smart production guy who minds his own store? That’s for those who know him to say.

It’s hard to make all the right moves when you have three heads. Hopefully Chrysler will find some synergy, but at this point it’s probably too early for those of us on the outside to know what’ll happen next.

Killing off Dodge cars

The Wall Street Journal caused a local uproar by printing a rumor that Dodge cars were on the chopping block, leaving Dodge with wagons and SUVs, and Chrysler with cars. That’s an interesting rumor because it corresponds with an old Daimler plan, the one that brought us Magnum and Caliber, but not Intrepid (which finally came as the Charger) or Neon. (Chrysler has, incidentally, fully and vociferously denied it.)

We’re not sure whether this is a serious plan of action or not. If it is, it should be considered proof that the people at Chrysler really have a hard time understanding their jobs, especially with the Challenger buzz, the Charger gaining credibility, and the Caliber not quite the roaring success it was meant to be. It would also be the death knell of any Chrysler upscale aspirations, unless…

Regulars know where I’m going with this, but it would allow Chrysler to carry out the plan of making Dodge essentially a “truck/brute performance” brand - Charger, Challenger, and trucks - which it’s becoming anyway, with the Avenger being ignored by the market and the Caravan actually falling below the Town & Country for the first time ever. The missing piece would take over the everyday cars - Caliber, Avenger, V6-powered LY car - and let Dodge go with the macho routine and Chrysler slowly float upscale, freed of its inherited Plymouths (Town & Country, PT Cruiser, and Sebring sedan).

Chrysler’s actions will, to many people, show its owners’ intent. Drop Dodge cars, and the remaining loyalists can go on to GM with a clear conscience, knowing that Cerberus plans to strip-and-flip or just plain strip. Add Plymouth - not DeSoto, not Hudson, not Azcor, not Zoomie, not Harcker, but Plymouth - and they show that Chrysler does indeed care (for once) about its owners, its heritage, and its future. It would also show that at least one person in the hierarchy actually understands Chrysler’s brand images - and has some grasp of history. Then the remaining loyalists can bring more people into the fold, assuming, of course, that quality continues to rise, and that the product is there - and not something we’re reluctant to invite friends into.