http://www.ft.com/cms/s/0/ae2f5158-4733-11de-923e-00144feabdc0.html
Only two Chrysler lines pass viability test
By Bernard Simon in Toronto
Published: May 23 2009 03:00 | Last updated: May 23 2009 03:00
The challenge facing Fiat in reviving Chrysler has been underlined by a report that concludes only two of the Detroit carmaker's vehicle lines are going concerns.
The popular Jeep Wrangler and the high-powered Dodge Viper
sports car are singled out in the report, compiled by Capstone, one of Chrysler's financial advisers, commissioned to provide an analysis of creditors' recoveries in a possible liquidation.
A New York bankruptcy court is set to give the green light on Wednesday for the creation of a "new" Chrysler centred on a far-reaching alliance with Fiat.
The court order could lay the groundwork for Chrysler to emerge almost immediately from Chapter 11 protection, according to a person familiar with the proceedings.
It had originally set a July 1 target for emergence but the Obama administration's automotive task force has been pushing for Chrysler to complete its restructuring before a potential bankruptcy filing by its bigger rival, General Motors, likely on May 31.
Chrysler has stressed since seeking protection on April 30 that its long-term survival hinges on a speedy restructuring. Almost all its plants are currently closed.
Fiat will initially have a 20 per cent stake and aims to use its small car technology and global distribution network to rectify Chrysler's two main weaknesses: its heavy dependence on pick-up trucks, sports utility vehicles and minivans; and its limited business outside North America.
George Magliano, director of automotive research at IHS Global Insight, a consultancy, said: "Even with Fiat, Chrysler must still prove they can survive prior to the recovery in light vehicle sales in late 2010." He puts the odds on the carmaker going under at 20-30 per cent.
The new Chrysler will be a far leaner company and the US government has offered up to $6bn to keep it afloat.
Under the restructuring, it will jettison eight assembly and parts plants, a quarter of its total capacity. It also plans to revoke the franchises of almost 800 underperforming dealers, a quarter of the total.
It will need to rely on its existing product line until the Fiat-designed cars become available, probably in late 2010 or early 2011.
A liquidation analysis compiled by Capstone this year identified two other Chrysler lines - the Dodge Ram and Dakota pick-up trucks, and mid-sized cars built at a plant outside Toronto - as viable.
However, the latest report says that subsequent analysis shows these two businesses recorded operating losses last year owing mainly to higher-thanexpected discounts and other incentives required to generate sales. Chrysler has recently offered the highest incentives of any major carmaker.
Analysts expect Chrysler's market share to drop markedly in coming months.
Copyright The Financial Times Limited 2009
Only two Chrysler lines pass viability test
By Bernard Simon in Toronto
Published: May 23 2009 03:00 | Last updated: May 23 2009 03:00
The challenge facing Fiat in reviving Chrysler has been underlined by a report that concludes only two of the Detroit carmaker's vehicle lines are going concerns.
The popular Jeep Wrangler and the high-powered Dodge Viper
sports car are singled out in the report, compiled by Capstone, one of Chrysler's financial advisers, commissioned to provide an analysis of creditors' recoveries in a possible liquidation.A New York bankruptcy court is set to give the green light on Wednesday for the creation of a "new" Chrysler centred on a far-reaching alliance with Fiat.
The court order could lay the groundwork for Chrysler to emerge almost immediately from Chapter 11 protection, according to a person familiar with the proceedings.
It had originally set a July 1 target for emergence but the Obama administration's automotive task force has been pushing for Chrysler to complete its restructuring before a potential bankruptcy filing by its bigger rival, General Motors, likely on May 31.
Chrysler has stressed since seeking protection on April 30 that its long-term survival hinges on a speedy restructuring. Almost all its plants are currently closed.
Fiat will initially have a 20 per cent stake and aims to use its small car technology and global distribution network to rectify Chrysler's two main weaknesses: its heavy dependence on pick-up trucks, sports utility vehicles and minivans; and its limited business outside North America.
George Magliano, director of automotive research at IHS Global Insight, a consultancy, said: "Even with Fiat, Chrysler must still prove they can survive prior to the recovery in light vehicle sales in late 2010." He puts the odds on the carmaker going under at 20-30 per cent.
The new Chrysler will be a far leaner company and the US government has offered up to $6bn to keep it afloat.
Under the restructuring, it will jettison eight assembly and parts plants, a quarter of its total capacity. It also plans to revoke the franchises of almost 800 underperforming dealers, a quarter of the total.
It will need to rely on its existing product line until the Fiat-designed cars become available, probably in late 2010 or early 2011.
A liquidation analysis compiled by Capstone this year identified two other Chrysler lines - the Dodge Ram and Dakota pick-up trucks, and mid-sized cars built at a plant outside Toronto - as viable.
However, the latest report says that subsequent analysis shows these two businesses recorded operating losses last year owing mainly to higher-thanexpected discounts and other incentives required to generate sales. Chrysler has recently offered the highest incentives of any major carmaker.
Analysts expect Chrysler's market share to drop markedly in coming months.
Copyright The Financial Times Limited 2009
