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The Chrysler rumor mill
The whispering about Detroit's only private automaker is getting louder, and almost none of it is positive.
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| The rumors keep circulating about drastic changes needed at Chrysler, now a private company. |
(Fortune) -- It was only five months ago that Cerberus Capital Management bought 80% of Chrysler from Germany's Daimler but already the vultures are circling. Stock market pundit Jim Cramer has become the latest to forecast disaster for the struggling automaker. In the January 7 issue of New York magazine, Cramer riffed on Chrysler's weakened condition and the skills of its CEO, Bob Nardelli of Home Depot, declaring: "Call the Chrysler failure [in 2008] a lock."
Of course, Cramer makes pronouncements with the same frequency - and credibility - as politicians who promise higher services and lower taxes. But he was only the latest to forecast impending disaster for private equity's first foray into the auto business. The clamor grew so loud before Christmas that Cerberus, which usually maintains a stony public silence, felt compelled to put out a statement declaring that its board of directors was "highly complimentary" about Chrysler's progress and that the automaker is "not only meeting, but, in many cases, exceeding its financial targets."
Cerberus' statement did nothing to dampen the Detroit rumor mill, where the activities of private-equity guys from New York are the subject of intense speculation. Take fleet sales. So weak is Chrysler's current product lineup - and so out of sync with the market - that competitors figure that an unusually large chunk of its car and truck production is being dumped into fleets.
Others are even pondering the possibility of a merger between Chrysler and Detroit's other weak sister - Ford (F, Fortune 500). One scenario has it that Ford would keep Chrysler's Jeep brand and its Dodge and Chrysler minivans - and discard everything else.
One major reason for all the gossip is that, as a private company, Chrysler now operates with a far lower public profile than it used to. Outsiders eagerly pounce on every piece of news that dribbles out. Detroiters were fascinated to hear talk, for example, that Chrysler keeps track of its cash flow on practically an hour-by-hour basis and that Cerberus's office in New York gets a daily accounting of how much money is in the till.
Another morsel of news was the announcement that Chrysler has already approved more than 260 line item improvements for its products - some of which will appear as soon as February. In an industry that usually requires a year or more to identify needed changes, engineer and source them, and then introduce them into the manufacturing process, that announcement either constitutes an operational revolution -- or an off-the-cuff impulse that could cause more problems than it solves.
Chrysler's current travails beg the question about how the experienced automotive minds at Daimler, after nearly a decade of ownership, could have left Chrysler in such miserable shape. All the talk about clashing cultures and the mismatch between American mass-marketing techniques with the cost-is-no-object Germans luxury car makers doesn't explain the failure of products like the unloved Chrysler Sebring, the ungainly Dodge Nitro, and the unnecessary Jeep Commander.
Chrysler used to be known as the sharpest design house in Detroit. But its one recent success, the much heralded Chrysler 300 sedan, looks increasingly like a shot-in-the-dark. For instance, the 300's platform-mate, the Dodge Magnum sport wagon, in many ways a more successful execution but one that failed to reach sales targets, is now headed for extinction.
In fact, most of the new models that were pushed through during CEO Dieter Zetsche's tenure look cheap and flashy - like the kind of costume jewelry you'd find in a discount store. "Exterior styling, a Chrysler forte, seems to have lost its way," says consultant George Peterson of AutoPacific. "And they have been doing the most downscale interiors in the industry."
One theory is that Chrysler's German owners panicked when they saw the demographics of Chrysler and Dodge buyers - older, less well-educated, and poorer than the owners of other American brands, much less the imports. Instead of trying to moving up market to attract better-heeled buyers with smarter, better-executed vehicles, Daimler decided to reach down instead.
Another thought is that in an effort to squeeze more products out of its capital budget, the money spent on interiors and other items was cut to stay within limits, with unfortunate results. In 2007, Chrysler kept itself afloat with some of the highest percentage of fleet sales in the industry, north of 30%. For 2008, vice-chairman and president Jim Press says, "We want to get into the 20's range we haven't been there."
With the overall industry expected to be under strong pressure this year, a sharp decline in market share brought on by lower fleet sales could crank up the Chrysler rumor mill to an even higher volume. 
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