Is Chrysler Running On Empty?

Analysts say Chrysler probably won't survive the year as an independent company -- despite $4 billion in government loans and the possibility of more.

DETROIT (AP) -- Even by the standards of battered automakers, Chrysler is in dire shape. Its sales in December were down a stunning 53 percent, far worse than Ford or General Motors, and analysts say it probably won't survive the year as an independent company -- despite $4 billion in government loans and the possibility of more.

Things were so bad last year that a single Toyota model, the Camry/Solara midsize car, outsold the entire fleet of Chrysler LLC's passenger cars.

"Basically they're done," said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight in Troy, Mich. "There is no real possibility of turning this thing around as an independent company in my opinion."

Chrysler will not comment on speculation about its future, spokeswoman Shawn Morgan said Wednesday.

"We are completely focused on our plans to ensure the future viability of our company," she said.

U.S. sales of Chrysler, Dodge and Jeep brand vehicles fell 30 percent last year, the worst decline of any major automaker. It lost more market share than any of its peers, down to 11 percent. Analysts say most of Chrysler's products, especially its cars, don't look, feel or drive as well as the competition's.

Chrysler plans to introduce an electric car in 2010, but until then, there are few promising models to boost sales. Many analysts predict that by 2010, Chrysler will be acquired by another automaker or sold in pieces by its majority owner, New York private equity firm Cerberus Capital Management.

Chrysler's chief financial officer has said the company needs $7 billion every 45 days to pay parts suppliers, and analysts question whether the company's meager sales are generating enough cash to make those payments.

Analysts also say an acquisition by General Motors Corp. is still possible. The two companies discussed it late last year before GM backed away to focus on its own cash issues.

Nissan Motor Co. could be interested in buying Chrysler's truck business. Chrysler is already signed up to make pickup trucks for the Japanese company.

Jonathan Macey, a Yale University law professor who has been critical of U.S. automakers' management, said Chrysler's sales numbers are "further evidence of an unviable entity."

When automakers went to Washington late last year, their aim was to get enough money to become viable again. They wound up with only enough help from the Bush administration to get them through March, when President-elect Barack Obama will be in office and might provide more aid.

Macey said giving the carmakers any money is burning cash.

"I'm a big fan of not throwing good money after bad," he said. "The idea that you would enter into a financing relationship like this without any parameters is more evidence of the complete insanity of all this."

A Treasury Department spokeswoman noted that the agreement for the government's automaker loans required that the administration designate someone to keep analyzing the companies' finances and viability.

Macey, author of a book on corporate governance, said it's too late for Chrysler and GM to solve their problems, including high labor costs and union work rules that hinder competitiveness.

To get the loans, GM and Chrysler had to agree to negotiate concessions from creditors and the United Auto Workers union, but the specifics have yet to be worked out. The government can call in the loans March 31.

Chrysler Chief Executive Robert Nardelli, in a presentation to the Senate Banking Committee last month, said the company could stay alive in the long term with reasonable concessions, a $7 billion bridge loan and $6 billion more out of the $25 billion Congress allocated to develop new fuel-efficient technology.

The Bush administration provided a $4 billion loan. Now, Chrysler is counting on an additional $3 billion in aid for its financing arm, Chrysler Financial.

Some lawmakers say automakers need time to wring out the concessions, and point out that the recession and nearly frozen credit markets are at least partly to blame for poor sales.

"You could make a car that could run on air or could fly and people wouldn't buy it," said Senate Banking Chairman Christopher Dodd, D-Conn. "I'm hoping that we may see some of that investor consumer confidence come back."

Chrysler, based in Auburn Hills, Mich., and Ford Motor Co., in nearby Dearborn, are also waiting on a decision from the Federal Deposit Insurance Corp. on whether they can become industrial loan corporations. That would mean the government could guarantee their debt, making it more appealing to investors, whose cash Chrysler could use to make more car loans at better terms.

Some lawmakers have noted that foreign automakers, including Japan's Toyota Motor Corp. and Germany's BMW AG, have the industrial banks, placing the domestic auto industry at a disadvantage.

Sen. Carl Levin, D-Mich., whose state is home to Chrysler, GM and Ford, said much will depend on how the Obama administration executes the terms of the auto bailout.

In his presentation to Congress, Nardelli used charts that showed Chrysler could post an operating profit of $400 million this year if Americans buy about 11 million light vehicles overall. But in this economy, analysts predict the figure will come in smaller.

Nardelli said Chrysler will improve fuel economy on 19 models this year, about three-quarters of its product line. Besides the electric car, it also has a deal with Nissan to produce a Chrysler subcompact in 2010.

Last month, Chrysler showed off prototypes of a new 300 sedan, Charger performance car and Jeep Grand Cherokee, as well as new, more luxurious interiors under development for nearly all of its products.

The problem, says Bragman, is that significant new products don't arrive for another year. And Chrysler may not make it until then.

"The good stuff doesn't come in time," Bragman said. "They don't have any help coming really for 2009."

Associated Press Writer Ken Thomas reported from Washington. AP Economics Writer Martin Crutsinger in Washington also contributed to this report.

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