The Future of Chrsyler

On Father’s day morning I watched the McLaughlin Group as I do most Sunday mornings. (Although I frequently turn off the sound while they shout over each other.) At the end of the show, John invites his guests to make a prediction and he makes one, too. John predicted that Chrysler will produce a car that gets 50 miles per gallon and costs less than $5,000 by the end of 2011.

 Let’s look at that in pieces. (Although I am going to nitpick with him over some of the details, I am not criticizing John McLaughlin. Keep reading.)

 First, it really isn’t Chrysler anymore. It is Fiat/Chrysler. This is more significant than most Americans realize. (Fiat didn’t put up any money to “buy” Chrysler. If the “new” Chrysler crashes and burns, Fiat walks away with minimal consequences. Sweet. Where do I sign up for this for my business?)

 Second, a car that gets 50 mpg is really no big deal. This is the easy part, believe it or not.

 Third, I think that a “less than $5,000” price tag is seriously optimistic, but I do think we could get into that neighborhood. (This is going to be a very bare bones car. Let me suggest that your teenager doesn’t need to drive a Lexus/Hummer/Suburban.)

 Fourth, I am not convinced that Chrysler can produce this (very) theoretical car in the US by the end of 2011. I will concede that Fiat/Chrysler might produce that car somewhere else by then, but that is a very different issue. (I understood that part of the reason we bailed out Chrysler and GM was to help save American jobs. If all of these production jobs move overseas, why are American taxpayers footing the bill to preserve and/or create jobs in Italy?) Historically, the time line from design to market for the US auto industry has been more than 5 years. To shorten that reality, the only option is to tool up to produce an existing Fiat model in the US. One small problem: the Fiats produced in Europe do not comply with US environmental laws. Either Fiat/Chrysler has to get a waiver of existing environmental laws or they have to re-tool their “small engine technology” to comply with those laws. Any bets on which is more favorably received by US taxpayers? And how long will this take?

 Another small detail: it takes more than a month or two to re-tool a car plant. Remember all of those car ads on TV that show the robots making the spot welds or spraying paint on cars on the assembly line? All of those robots have to be re-programmed to produce another car. The end of 2011 may be achievable (although improbable), but can Fiat/Chrysler survive that long? Their sales are already down by half from historical levels. (They aren’t the only one, but their numbers seem particularly bad.)

 More problematic are two questions that have no happy answer. First, what is the “hot” Chrysler product that people “have to have?” (To keep Fiat/Chrysler in business in the US for the interim period. However long that is.) The short answer is that there is no such product. The Dodge Ram truck is the leading contender, but the Ford F-150 and the Chevrolet C1500 are far more popular. (A very large problem.)

 Second, what is the Fiat product that Americans “have to have?” This is the “save Chrysler” notion. In theory, Chrysler is supposed to benefit from Fiat’s small engine technology. Let’s assume for the purpose of argument that Fiat has some super duper technology that will save Chrysler. If that was the case, Americans would be clamoring for that already existing Fiat model. Fiat would be selling thousands/millions/gazillions of those cars, because America is, after all, the home of “sell what sells.”

 John McLaughlin’s prediction that Chrysler would produce a 50 mpg $5,000 car by the end of 2011 illustrates the real problem. Most of the Pundits talk about Chrysler being “out of bankruptcy” like that’s the end of the story. The harsh reality is that Chrysler is still in serious trouble. The Fiat deal is life support. (At best.) Chrysler is not viable, Fiat or no Fiat. Chrysler as we know it will cease to exist. The question is the date of the demise, not whether it will happen.

 Michael Baumer



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by Michael Baumer