Chrysler faces challenging future: White House

Chrysler faces challenging future: White House
AFP
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First Published: Mon, Mar 30 2009. 01 59 PM IST
Updated: Mon, Mar 30 2009. 01 59 PM IST
Washington: US automaker Chrysler faces a challenging future on its own and is unlikely to remain viable unless it manages to find a partner, the White House said Monday in a grim assessment.
Unveiling the results of a restructuring plan submitted by the company, a White House task forced found the company had failed to comply with the terms of a bailout agreement ahead of a 31 March deadline.
The team, set up by President Barack Obama, said in a report “that the Chrysler plan is not likely to lead to viability on a standalone basis.
“Chrysler must seek a partner in order to achieve the scale and other important attributes it needs to be successful in the global automotive industry,” it said.
“In particular, Chrysler’s limited scale in an increasingly capital-intensive global business, the inferior quality of its existing product portfolio and its heavy truck mix leave the company poorly positioned.”
Chrysler’s proposals to turn around the company were “overly optimistic,” the White House team found as Obama prepared to unveil his plans at 11:00 am (1500 GMT) for the future of the key industry.
The report found Chrysler faced some key challenges ahead:
— Product Development: Chrysler’s scale limits its product development budget overall, and particularly limits the amount the company can spend on developing new product lines.
— Purchasing: Due to its limited scale, the company is unable to exert leverage on suppliers to reduce its cost of goods.
— Fixed costs: Chrysler’s more limited scale means that some of its fixed costs are spread over a smaller base, which translates into several hundred dollars per car of reduced profit.
Chrysler told the US Treasury last month that it would not be able to survive the current downturn without an additional $5 billion in government loans on top of the $4 billion it has already received.
Earlier this month Chrysler reported a 44% drop in February US sales although its share of the ailing retail market rose significanly.
It announced plans to introduce new incentives in March to supplement major discounts already on offer, including employee pricing, cash back of up to $6,000 and 0% financing.
February sales of 84,050 vehicles were also significantly higher than the 62,157 units sold in January.
But the White House task force warned Monday that “Chrysler’s products have also historically underperformed in terms of quality, which remains a significant challenge.”
It said the company had failed to forsee the changing tastes in the market and that Chrysler had admitted itself that improving quality would take a number of years.
Due its limited resources, the company could also not pump enough funds into the necessary research and development, and had failed to put enough emphasis on the small car market.
This area ” will be increasingly important to automotive manufacturer profitability if potential gasoline price hikes meaningfully increase demand for smaller, more fuel-efficient cars.
“Unlike GM, which has had a number of successful recent product introductions and has developed a new global product development process that has promise, there are few tangible signs that Chrysler can reverse its share erosion.”
The team found Chrysler had “made meaningful changes to its cost structure in the last few years.
But “the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging.
“As a result, the President’s Designee has found that Chrysler’s plan is not viable as currently structured. However, a partnership with another automotive company, such as Fiat or another prospective partner, which addresses many of these issues could lead to a path to viability for Chrysler.”
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First Published: Mon, Mar 30 2009. 01 59 PM IST
More Topics: Finance | Economy | US | Chrysler | GM |