Chrysler CEO: Industry Ripe For Mergers

Steep Decline In Auto Sales May Lead To Industry Consolidation

(CBS/AP)  Chrysler LLC Chief Executive Bob Nardelli said Thursday that a steep decline in U.S. auto sales has created an environment for industry consolidation, but he would not comment on reports that talks are accelerating for General Motors Corp. to acquire his company.

Speaking on the CNBC cable channel, Nardelli said Chrysler has been open about looking for partners and creating alliances, but he would not address the GM discussions.

However, he said the U.S. auto sales slump has set the stage for industry consolidation.

"It certainly creates an environment for consolidation where you can get synergies of productivity that will allow you to be more competitive, not only here in the U.S. market, but on a global basis," he said.

General Motors has discussed a merger or acquisition with Cerberus Capital Management LP, the New York private equity firm that owns 80.1 percent of Chrysler, a person familiar with the negotiations told The Associated Press last week.

The Wall Street Journal reported on its Web site Thursday night that potential lenders are eager to see the deal finished, and that GM wants it done as early as the end of October.

GM is trying to raise additional capital as it faces potentially huge losses when it reports third-quarter earnings in the coming weeks.

A major player in the deal is J.P. Morgan Chase & Co., one of the largest holders of Chrysler bank debt and one of GM's key lenders, the Journal said.

Another person with knowledge of the talks told The Associated Press on Thursday that no deal is imminent. Also, GM's board reportedly has been cool to the idea.

Industry analysts also are skeptical of how GM would benefit, but Chrysler has said it has about $11 billion in cash, and GM may be interested in gaining access to that.

Analysts say cash would be the only reason for GM to be interested in taking over Auburn Hills-based Chrysler, a privately held company that doesn't have to report earnings. It lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25 percent so far this year, the worst drop of any major automaker.

Detroit-based GM is burning through than $1 billion in cash per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. Sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, largely because of tax accounting changes.

All of this comes as U.S. sales have slowed to their lowest point in 15 years, making bankruptcy possible for all of the cash-strapped Detroit Three if things don't turn around soon enough.

GM announced Thursday that another 1,600 workers at three factories will be laid off indefinitely over the next few months as the company tries to control its inventory.

Nardelli also said it's possible the U.S. industry could end the year selling around 13 million vehicles, more than 3 million below last year's level. Chrysler has had to reduce factory capacity by 1.1 million vehicles due to the slump, he said.

He said a million people are depending on Chrysler's success, including 66,409 employees, as well as those who work for parts suppliers, dealers, transportation firms and other companies.

"I hope the general public, I hope the leaders in Washington understand the implications of the pressure the industry is under right now," he said.

He said it remains to be seen whether Chrysler will need government help again like it did in the 1970s, and said a reduction in gas prices has been eclipsed by problems for consumers gaining access to credit.

Cerberus bought its stake in Chrysler in 2007 from Daimler AG in a $7.4 billion deal. Cerberus and Daimler confirmed last month that they are in talks for the private equity firm to acquire Daimler's remaining 19.9 percent Chrysler stake.

[t4337vd]

UAW. It is not be only reason why US car companies are down but sure UAW is a main reason with its culture of mediocrity, promotion based on seniority, and automatic wage increases. Toyota and other foreign (what is foreign and what is domestic: it lost its relevance now in a global economy) car companies that manufacture in US have a main common trait: they are not unionized (in general). However UAW is fighting that: a blood sucking leech.
Another important reason for the high manufacturing cost / unit that US automakers have is their healthcare and pension costs that other new comer automakers in North America do not have to the same extent. Toyota, Honda for instance do not have the pension and health care cost liabilities because they are new and have a younger workforce. Globalization is the great equalizer in wages and standard of living. We are living through it and it affects not just the automotive industry but all the American economy with an unavoidable result of lowering the standard of living in US and raising the one in other regions (India China, Mexico). The only way to stay abreast is training, education expertise in leading edge new technologies so one can still provide an employer an incentive to hire him / her.

Valentin

Dearborn, MI

[t4337vd]

UAW. It is not be only reason why US car companies are down but sure UAW is an important main reason with its culture of mediocrity, promotion based on seniority, and automatic wage increases. Toyota and other foreign (what is foreign and what is domestic: it lost its relevance now in a global economy) car companies that manufacture in US have a main common trait: they are not unionized (in general). However UAW is fighting that: a blood sucking leech.
Another important reason for the high manufacturing cost / unit that US automakers have is their healthcare and pension costs that other new comer automakers in North America do not have to the same extent. Toyota, Honda for instance do not have the pension and health care cost liabilities because they are new and have a younger workforce. Globalization is the great equalizer in wages and standard of living. We are living through it and it affects not just the automotive industry but all the American economy with an unavoidable result of lowering the standard of living in US and raising the one in other regions (India China, Mexico). The only way to stay abreast is training, education expertise in leading edge new technologies so one can still provide an employer an incentive to hire him / her.

Valentin, Dearborn, MI

[jaykay3141]

/* "Chysler ... makes ugly cars that look like they where [sic] driven by the mob in the fifties. GM has enough troubles selling their horse armored cars%u2026" */

Right on target! Combine two product mixes designed to appeal to adolescent boys and Viagra-deficient middle aged men, and you still have a lineup that s*cks big time. Chrysler''s cars are full of cheap plastic and score in the basement on quality surveys, and GM''s still trying to get out from under the Hummer and other monstrosities.

I have no sympathy for the managers who ran these companies into the dirt. But I also know that U.S. workers CAN and DO build good cars because my AMERICAN-MADE Honda has lasted longer and cost less than the last 2 GM cars we owned before switching.

I thought that the essence of capitalism was competition, where the winner was the guy who did the best job for less money. If U.S. car co''s can''t do the job, they need to be shown.

P.S. I''d learn how to spell "hypocrite" before throwing the word around.

[bobnjersey]

[Chrysler LLC Chief Executive Bob Nardelli said Thursday that a steep decline in U.S. auto sales has created an environment for industry consolidation, but he would not comment on reports that talks are accelerating for General Motors Corp. to acquire his company. ]

yea bob ... consolidation is the answer ... it produces more competition ... it lowers prices ... and it guarantees a bailout when you get too big to allow to fail.

you''re one smart cookie ... maybe you should start a investment house.

[brianbwb-2009]

smells like ol'' Bobby is fishing for a partner to help the company pay his salary before it goes belly up.

The automakers were the beginning of the decimation of the middle class, they laid off the workers, the effect rippled through all the related sectors of America, until there aren''t enough people to sell to.

It is their fault, we don''t care...

[jediservant]

Isn''''t it funny how people jump on a band wagon and say things they don''''t know a thing about.

All of you Japan loving people should go live some where else. You I repeat you are the problem with this economic out fall. How many of you so called Americans even own anything American.

What a bunch of hipacrits. If you want to help buy American. I personally have never owned a Foriegn car and I will never own one.

As far as Mopars breaking down, what a bunch of Bull. I have owned them my whole life and I have never had one break down on me. Just look on the side of the road now that all of you people are buying Toyota and see how many of them are on the side of the road.

You people make me sick

Posted by mopar1956 at 08:16 AM : Oct 17, 2008

----------------

I bought a Chevy truck and found out they are made in Mexico. So have I really bought American?

I would rather buy a Toyota that was made in the USA that paid a wage to American citizens and paid local taxes to cities in America.

[djlny]

Chrysler is NOT an American company anymore. I used to buy only Mopar until Mercedes bought them (or more politically correctly "merged"). Then a Canadian outfit buys them I have a Honda made in the USA with as many American made parts as anything on the road. The idea of any automaker being American anymore is sadly a myth. This needs to change. I cannot financially support with my limited budget, any corporation no mater how structurally deficient they may be. When Exxon is going down the tubes are we going to buy their gas if its'' quality stinks and their prices are higher? That support has to be done at the government level. Booting some of the workers who are in fully paid in retraining school for a decade wouldn''t hurt but then we get back to spiraling health care costs that saddle the company. Maybe the government could provide some relief there as well - no other car company in the world has to contend with that.

[mopar1956]

Isn''t it funny how people jump on a band wagon and say things they don''t know a thing about.

All of you Japan loving people should go live some where else. You I repeat you are the problem with this economic out fall. How many of you so called Americans even own anything American.

What a bunch of hipacrits. If you want to help buy American. I personally have never owned a Foriegn car and I will never own one.

As far as Mopars breaking down, what a bunch of Bull. I have owned them my whole life and I have never had one break down on me. Just look on the side of the road now that all of you people are buying Toyota and see how many of them are on the side of the road.

You people make me sick

[orbit1957]

GM will pull out of this downturn and show the world that Made In America is alive and well. Why do American''s love to bash American products? GM and it''s partner the UAW have provided for this country in time of war and peace. They have provided the manufacturing base for good paying jobs that in turn provide tax dollars to our goverments to function and provide the services we all expect in our daily lives. Stop the quality bashing...get informed...the gap no longer exists.

[upto1947]

Both are junk companies and should be shut down and all workers laid-off for good.

[daws711]

It''s a shame to see Chrysler still running. The government bailout of $500M in the 70''s was because of all the government vehicles they made. Today, they are still floundering. The Daimler merger was a disaster, and forever tarnished the Daimler brand. Chrysler still makes an inferior product - I can''t understand why anyone would buy such a piece of junk. They are always at the bottom of quality surveys, and always highest in repair issues. Let Chrysler go under before GM makes a huge mistake. Granted, Chrysler vehicles have smart & atractive designs, but many folks end up broken down on the side of the road in their good-looking vehicles. Whenever I go on a road trip, I play a game to see which car brand has the most broken down cars on the side of the road. Chrysler wins it every time. Captain Bob needs to go down with the sinking ship.

[tmittelstaed]

Because the Chrysler dealer network is the most valuable part of the company, it does not make any sense at all for either GM or Ford to merge with Chrysler. What would have made the most sense, and still makes a lot of sense, is a merger with Tata Motors, since they do not currently have a US dealer network, and they have a good line of small cars in production. Tata has also been doing the reengineering of their product line to make it compliant to US standards.
This frankly was a good plan when Cerebus bought Chrysler. Unfortunately the big problem now is the drop of the dollar against foreign currency. For Tata to buy Chrysler and make money with it, they would likely not be able to simply manufacture in India and import and distribute their small car line, like they could have before the dollar dropped. Tata also spent their cash hoard when they bought Jag and Land Rover from Ford this year so they would have to give Cerebus a pretty significant stake in Tata Motors to acquire Chrysler. The other issue is that India has some pretty severe restrictions on foreign carmakers selling into India and there is going to be a huge amount of pressure during the next administration to tariff car imports from countries that put up blocks against American carmakers selling into those countries. For Tata to buy Chrysler, it would likely require them to become invested in the US and design, build, and make cars in the US.

[cjs_cnet_xyz]

Chrysler has more desirable vehicles in every segment than GM. It''s just hitting a bad patch in the market. A merger might make finance guys happy initially, but it would only turn more people to foreign choices. Chrysler should stay independent if at all possible.

Chrysler and Suzuki should consider working together. Chrysler has a larger dealer network, but is missing smaller cars in its lineup. Suzuki needs more dealerships for providing service to its vehicles. Rebadged Suzukis would widen Suzuki''s appeal by providing more service centers. Suzuki and Nissan are already in a joint venture related to the Equator. Nissan and Dodge are entering into a joint venture related to the Titan. It is not as far of a stretch for Dodge and Suzuki to pair up. Remember, Suzuki is number one in small cars in Japan. It is also a direct competitor to Honda in the Motorcycle market. Suzuki and Dodge lineups don''t generally conflict in their offerings except for SUVs (Vitara,XL7). From its GSXR days, Suzuki is the rebel of the Japan bunch. This too fits with Dodge''s image.