Crisis At Chrysler

$1.5-billion in the red. 100,000 cars sitting, unsold, on dealer lots. And $1,300 of every new car sold goes straight, pre-profit, into the employee healthcare fund. Things are looking less than rosy at Chrysler at the moment.

In fact, things have gotten so bad that other car companies (including Renault-Nissan, Hyundai and Volkswagen) have already come out and said they are not interested in buying the ailing American firm from owner Mercedes-Benz. And that's even before Mercedes has actualy said that Chrysler is up for sale.

Like Ford and General Motors, Chrysler has been hit hard recently by a model line up that relies too heavily on SUVs and 4x4s at a time when Americans are deserting such cars in droves, thanks to ever-rising US fuel costs. Not to mention performing dreadfully in reliability surveys reliative to key rivals like Toyota and Honda. CEO Tom LaSorda claims that Chrysler is already in turnaround, with 20 all-new models due to arrive before 2009 and a $3-billion investment in new engines already signed off. But, also included in that plan are 13,000 layoffs, two factory shutdowns and a reduction in production capacity of 400,000 cars a year. And that's before thrashing out an agreement with the unions over healthcare costs, a prickly pear that Ford and GM have already managed.

There will be a few weeks of limbo for now. DaimlerChrysler won't want to make any definite noises this side of the Geneva motor show, to avoid taking the shine off any new models unveiled there. It's possible that DC boss Dieter Zetsche may play the waiting game, and see how LaSorda's restructuring plan works out. After all, a $1.5-billion loss is a tiny fraction of the crises that Fiat and GM both recovered from.

Chrysler is still very much on the chopping block though. A Chinese buy-out is a good probability, not least because no European or Japanese manufacturer would want to (or could afford to) take on Chrysler's massive structural problems, but also becuase Chrysler already has a deal in place with state-funded Chinese car maker Chery Motors to co-develop the new Hornet supermini. Chrysler could be sold off as one lot, or DC could decide to keep healthy, or at least potentially profitable brands, like Jeep. It's even faintly possible that legendary car industry investor Kirk Kerkorian, who robustly resisted the Mercedes takeover five years ago, could buy the whole shebang and return Chrysler to independence. File that one under 'Mulder & Scully' for now, though.

Once again though, the American car industry, once the powerhouse of the world, finds itself in crisis, with its fate in the hands of European and Asian investors.