Chrysler is Low Man on the Bailout Totem Pole

(MoneyWatch)  Could Chrysler be expendable?

In the same way that GM Chairman and CEO Rick Wagoner is almost inevitably first in line to take the heat for the past sins of the U.S. auto industry, it's almost inevitable that with everything else on the table, the debate surrounding the auto industry bailout will get around to the obvious fact that Chrysler is uniquely vulnerable.

That's because Chrysler is the smallest of the Detroit Big Three. Chrysler is also the least diversified, in terms of its almost total reliance on the U.S. market, and its overdependence on truck sales. Not to mention, Chrysler is still fresh from being unceremoniously dumped by Daimler just last year.

By comparison, Ford and GM have at least remained consistently independent, even if they have been forced to give up some of their import brands. They have much bigger and increasingly well-integrated global operations, and they are less dependent globally on trucks than Chrysler.

Chrysler and GM invite comparison, because they have both said they need government loans immediately, or risk going broke by Dec. 31. Ford says it can survive as-is, unless business conditions get much worse.

In a Dec. 9 note, Fitch Ratings said that a hypothetical bankruptcy filing by GM would force GM to offer huge discounts. That would force the rest of the industry to follow suit, which in turn would probably drag the other U.S. automakers into bankruptcy, too, along with several supplier firms.

The knock-on effect would even halt production at some import-brand factories in North America, because they depend on the same suppliers as the domestics, Fitch said.

On the other hand, a hypothetical Chrysler bankruptcy would probably result in Chrysler being broken up, Fitch said. That would hurt the rest of the industry, but not as much as a GM bankruptcy would, the rating agency said.

"In the event of a Chrysler bankruptcy, liquidation is seen as the likely outcome, with a limited impact on industry pricing. Although a Chrysler bankruptcy would have repercussions throughout the supply base and on Ford and GM's costs and production schedule, it is unlikely that a Chrysler bankruptcy would produce the same chain reaction as would a GM bankruptcy," said Fitch analyst Mark Oline.

Fitch expects U.S. auto sales in 2009 of only 11.6 million light vehicles, down from an estimated 13 million units in 2008. That would make 2009 the worst year since 1982.