Wednesday, May 23, 2007

Can Chrysler still be saved?

Guido Reinking is editor of Automobilwoche.
Guido Reinking
May 23, 2007 - 1:00 am Bob Eaton, Chrysler's chairman back in 1998, will go down as the sharpest used-car dealer in history.

He saddled his German customer, Daimler-Benz Chairman Juergen Schrempp, and his entourage, with a clunker at the highest possible price, roughly $40 billion.

It soon turned out to be an economic basket case. Even after some expensive fixes at the outset, it ran just two years before it again needed massive repairs.

Now Cerberus is towing this "great deal" off the lot. One can only wish the new owner good luck, even if it paid very little for the acquisition

The question of how this disaster could have occurred in the first place isn't worth asking. The central issue is whether Chrysler can be saved in the long run.

Can Cerberus succeed where Dieter Zetsche and his team failed? That is doubtful.

Just the guarantee of free medical care that Chrysler promised its employees, its retirees and their families represents a commitment of $17.5 billion.

About $29 billion in pensions will be paid out of a fund that currently is covering this expense because of a strong stock market. But Chrysler has to provide for medical care out of its cash flow.

That's a mortgage that Toyota, Honda, Nissan and Hyundai don't have. They can put their money into their products, not retirees' dentures.

And if Chrysler can barely cope with all this, just think how much worse the problem is for General Motors and Ford. They have to spend a multiple of that amount.

There is no doubt that the U.S. auto industry is in a fight for survival. The responsibility lies with executives who burdened their successors' successors with horrendous costs due to irresponsible wage agreements. The main goal was to be able to avoid strikes and make the next quarterly numbers look good.

It is small consolation that politicians from every party in Germany are behaving the same way and, with an eye to re-election, have built up a social system that can't be financed.

In this country, the costs of those mistakes will be spread onto many shoulders. In the United States, the older industries have to bleed.

It's not certain they will survive. Eaton's pension is secure, however. He went into retirement with compensation package in the two-digit millions.

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