Chrysler Files for Bankruptcy But Dealerships Will Remain Open
Declaring that Chrysler has "a new lease on life" President Barack Obama announced at a press conference today that the automaker will file for Chapter 11 bankruptcy (reorganization) while it forms a new partnership with Italy's Fiat.
Obama also said the bankruptcy will be "quick" and "controlled" and will not affect Americans' chance to buy a Chrysler or get it repaired. He also announced that General Motor's financial arm, GMAC, will soon finance new Chrysler sales to "unlock frozen credit markets" and help more consumers qualify for a new car purchase.
Chrysler owners will not be left in the lurch since warranties will be honored at the remaining dealerships. Even if the company is liquidated, the U.S. Government has already pledged to continue warranty coverage through a third party fund. While the press conference contained few details, a few events seem likely.
The deal with Fiat is in its final stage and will likely provide a future for Chrysler. This means that many Chrysler models will be eliminated, such as the PT Cruiser and the Sebring. Quite possibly Fiats will be manufacturer with a Chrysler skin on them.
Meanwhile, if you own a Chrysler, or are shopping for a Chrysler, Dodge or Jeep, you are likely wondering what all this means. One Chrysler dealer, when asked what this means for consumers, said, "Absolutely nothing. It's business as usual. The only difference is that soon we will sell smaller cars with better fuel economy."
A Chrysler owner, who had stopped in for service, commented, "There's no panic here. I'm sure it will all be here in three months when I need another oil change. But it's sad."
Still, convenience for Chrysler owners might be affected. Chrysler has 3,200 dealers, but needs to pair that down to about 1,600 to save money and make their new plan work. That means many Chrysler owners may need to drive farther for parts and service.
Another possible outcome is that Chrysler vehicles will be sold at even deeper discounts with higher incentives. The same is true for Pontiac cars since it was announced Monday that the GM brand would be eliminated.
So, to sum up, bankruptcy doesn't mean liquidation. It is even possible that GM will follow Chrysler into Chapter 11 and Americans will get used to living in the shadow of auto bankruptcy in the same way it has been accepted that in the airline industry. For some general info for owners dealing with a struggling automaker, see our story on Orphaned Car Brands and Dead Dealerships.
- Posted by
- Philip Reed April 30, 2009, 9:36 AM
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- Car Maintenance, Chrysler, Dodge
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- bankruptcy, Chapter 11, Chrysler, dealers, Fiat, incentives and rebates, parts and service, warranties
This is simply the beginning of the end for Chrysler. Unlike the inevitable Ch. 11 from GM, Chrysler has little hope of avoiding an eventual Ch 7 liquidation, simply because of product, or lack thereof.
Both Ford and GM currently have competitive products, with more on the horizon. Chrysler, on the other hand, has no class leading products (outside of Jeep) and nothing significant on the horizon.
Fiat (Fix It Again Today) can only offer the small fuel-efficient vehicles that are languishing on dealer lots in this country, that are not known for their reliability. Unless gas prices spike in the next six months (which they won't), Chrysler will not have any new products that will improve their market share or profitability. Without that, Ch. 7 liquidation is likely.
Jeep will be bought up by someone, but I bet Chrysler (and Dodge) will be relegated to the history books by the end of 2010. However, I sincerely hope I am wrong.
GM will also end up in Ch. 11, but I have every expectation that they will come out of it successfully and will be a much stronger company at the end of 2009 than they were at the beginning.
Sad, indeed. Chrysler has been on the life support for the past 30 years. Last 10 years it was all about cost cutting to the point of building vehicles with interiors like tonka toys, plastic, plastic, and more plastic. Daimler came in supposedly to save Chrysler. Now, we are seeing Fiat following the same route. Will Fiat be more successful than Daimler? Time will show but in the meantime I predict there will only be 4 Chrysler cars left over - Dodge Ram, Jeep Grand Cherokee, Jeep Wrangler, and Dodge Grand Caravan.
"Fiat (Fix It Again Today) can only offer the small fuel-efficient vehicles that are languishing on dealer lots in this country, that are not known for their reliability."
I made a simular comment to a relative in England and he laughed and asked what was the last Fiat I had seen. The last one I could think of was a Fiat Spider. He then wanted to know why I thought a car designed in the 60's was a good representative of their current models.
It seems Fiats are well thought of in Europe and while they may not be as reliable as the best of the Japanese, they are not the frail sports cars of the past.
A number of fun small and compact cars with a big heaping of character (something many Honda and Toyotas are short of) may just be what Chrysler needs to do another come back.
@firstwagon,
Possible Chrysler savior Fiat has low reliability scores
By James R. Healey, USA TODAY
Fiat cars are unreliable and unsatisfying, according to two respected independent surveys of European-market vehicles.
What's more, parent company Fiat Group appears not to have enough money to pay debt that matures in the next 12 months, Standard & Poor's said Tuesday as it downgraded Fiat's ratings.
Those are chilling reports at a time the Italian automaker is viewed as the only savior for Chrysler, via a proposed partnership.
Chrysler on Tuesday had no comment on meetings with Fiat or progress of the proposed deal.
President Obama's auto task force on Monday judged "Chrysler is not viable as a stand-alone company," and Obama said it won't get more bailout loans (it got $4 billion last year) unless it partners with Fiat — or somebody — by the end of April.
Fiat's poor scores give new life to the low-quality image the brand gained in the U.S. before it left in 1987. Some 1970s models "rotted away, fell apart as you drove down the freeway," says David Champion, head of auto testing at Consumer Reports.
Josh Whitford, a Columbia University assistant professor who's spent years in Italy studying auto manufacturing, says the newest models are improved: "Fiats are quite good these days. Fiat, in 2002, went through its own deep, deep crisis and bet on innovative new products."
But two European-market surveys report dissatisfaction.
•Fiats and Fiat-owned Alfa Romeos sold in European countries are near the bottom in reliability and "need to improve significantly to move away from the foot of the table where they have languished for several years," according to U.K.-based Which?, an advice publication that accepts no ads, similar to Consumer Reports in the U.S. It says newer models are improved.
•A survey of U.K.-market models by J.D. Power and Associates and magazine What Car? put Fiat 28th of 28 brands in the 2008 Customer Satisfaction Index for 2-year-old vehicles. Quality and reliability count for 30%.
The reliablity surveys don't reflect recent improvements, and give a misleading impression of Fiat products, says Gualberto Ranieri, vice president at Fiat Group headquarters in Italy. "We take quality and customer care issues seriously, and industry audits show that our performance has dramatically improved over the past decade," he said in an e-mail.
Still, such ratings cast doubt on whether a Fiat partnership would boost Chrysler scores. The 2009 Consumer Reports April auto issue showed Chrysler's Jeep, Dodge and Chrysler among the industry's least-reliable brands the past 10 years.
"You're putting together two companies that historically have had issues with quality," notes Stephanie Brinley at consultant AutoPacific's Detroit office.
"They've been better or worse at various points," Brinley says, "and not to say they're bad now, but there's a (negative) perception."
I dunno, I have really mixed feelings about this. While I've never had any love for Fiat, if they can save Chrysler's bacon and pull them out of this mess, then I guess I'm all for it.
BUT... as history has clearly demonstrated, it's not always that easy. Just within the last 10 years alone, it seems Chrysler has had at least as many makeovers as Madonna - even as recently as last year when Cerberus took over, the company was spouting a new beginning (remember the "welcome to the next 100 years" slogan?) This company can't continue to be bailed out like it has - it's luck has got to run out sometime.
This Chrysler/Fiat marriage kinda reminds me of the last-ditch effort that AMC tried when it paired up with Renault in 1979. Remember their first car together, the 1983 Alliance? What a piece of work that was. And as we all remember, it ultimately wasn't meant to be, as AMC finally closed its doors for good in 1988 and Renault was sent packing back to France.
I'm hoping history doesn't repeat itself in this case...
Chrysler in my opinion has a little bit more chances to survive than GM. GM's debt is more than three times than Chrysler. Fiat is not going to have an easy way having some credit issues and the only option they have to raise cash fast and pay back the loans is the sale of Jeep.
How can Chrysler suddenly become viable in 60 days?
Fiat cannot start selling cars in US until they pass rigorous US standards including safety and emissions. That doesn't take months, it takes years, at least 2.5 years to go through testing, plant retooling, workers retraining, etc. A good example is Ford Fiesta. Ford announced it would bring European built Fiesta to US 2 years ago and it is still in the works.
Another problem I have with Fiat is that they are not cars that americans associate with or know much about. At least we all know Ford but Fiats??? You can't fool a consumer today by giving him a Fiat with a Chrysler badge. Besides, how many of us would go out and start buying small cars from Chrysler/Fiat not knowing reliability and quality history. Unless gas tops $4 per gallon, I don't see a sudden urge to buy Fiats, or small cars in general. So, for the next 2 to 3 years while we wait for small Fiats to show up at Chrysler dealerships, Government would have to keep giving Chrysler more money to keep them running.
But, lets look at what else we can expect from Chrysler. What happens when you downsize? You lose great people, you lose the ability to focus on bringing new product, and what happens at the end? You have nothing in the pipeline. I've only heard of 2 new cars from Chrysler for 2011 which are Jeep Grand Cherokee and Chrysler 300. And, Jeep GC is not going to have 3 rows, so it won't be competing against SUVs with 3 rows such as the new Ford Explorer, Toyota Venza, Hyundai Veracruz, Mazda CX9, GMC Acadia, and many more.
There are few models worth saving for sure but I am not sure if that would be enough to keep the company running and at the same time convince consumers to buy small Fiatslers....