Tromper News Updates

What has changed with the filing of chapter 11 proceedings for Chrysler that gives you any hope that the situation has improved? Chrysler has exchanged or hopes to exchange $US 6.9 billion in debt for about $US 16 billion in debt (government) and $US 2 billion in debt (remaining bond holder debt) this puts them in a worse position not a better one. Their debt carrying cost already is about $400 per vehicle and an untold cost of long term debt per vehicle. In the end the government will probably walk from this debt but this added cost of capital will have to be added to Chrysler's P&L. In order for this deal to be successful the government assistance will not be a loan but needs to be a gift. Chrysler has been losing market share for 15 yearsin NA and will continue to lose market share since many consumers will not buy from a bankrupt company. Chrysler has cut marketing budgets by 50%, how will they be able to maintain sales? Chrysler's product pipeline is the weakest of all OEM players. Chrysler has the lowest resale value of any passenger car in the industry and one of the lowest resale values of the light truck market. Labour costs will go down but if Lewenza is correct and only 7% of these costs are union controlled then unionized labour costs will be reduced to about 6% of the price of the vehicle, the non union costs are another approx. 35% of the price of the vehicle and these cost do not change by a penny with the bankrupcy filing. On the positive side Chrysler has a revenue and price problem not a cost problem other than the debt obligation costs. Chrysler last year lost $US 16.8 billion and this year will lose money again. The market last year was 14 million units in NA and tracked at 20 million units most of the last decade and this year will be about 11-12 million units with no hope of increasing for at least a couple of years. The Detroit three including Chrysler has a business model where they try to make a little bit of money on high volumes rather than a lot of money on fewer vehicles. Now Chrysler is having to go head to head with volume players which they can't do because of their size. Chrysler has always relied on styling while the market has moved to functionality. The Japanese do best in functionality and this is one of the reasons they have been so successful. Chrysler has been jumping from one far out design to the next with minimal volumes (pt cruiser, 300,sebring,caliber etc.)each model gets little support from the rest of the line. Chrysler is still caught up in the entitlement culture of Detroit and bankruptcy doesn't necessary change culture. So if bankruptcy doesn't result in a change of culture then we are condeming both Chrysler and GM to the scrap heap by pushing them ino bankruptcy. Daimler failed with Chrysler, Cerberus failed with Chrysler and it will be difficult for Fiat to turn this thing around. Fiat can win this game. They could sell Ram pick ups and Minivan, close all the small and mid-sized car lines and substitute Fiat product, keep jeep (or even sell jeep) and emerge as a 4-5%market share company.This would give about 750K sales a year in NA which would be considered a huge win for Fiat. They would still have to get rid of the government debt but the time line on this is 6 years from now. The unions own (don't control) 55 percent of Chrysler--will management be able to close plants?? Fiat has the worst rated quality for their vehicles in many European markets... 28th out of 28OEMs on some surveys. Any OEM is only as good as their people and this past year Chrysler lost over 5,000 employees with buyouts and lay-offs and more are on the way. Most of the workers that are gone were the most experienced. A few ramblings for the masses to consider