I was recently discussing -- as just about everyone in the country it seems is -- the fate of Chrysler and General Motors. During the conversation, a couple of people were arguing that we should just let them fail and go into an organized bankruptcy and then liquidate. I tried to argue the foolishness of that and how the repercussions would be global in scale. I centralized on just Chrysler, the smallest of the “Detroit Three,” as they are now backhandedly called. As we were discussing this I wished I had some more exact facts and figures, but in the heat of the moment I unfortunately did not. Now, however, I was able to do some research to back up my claims and believe me, they both received an email of this article directly.
As I mentioned, even though Chrysler is the smallest of the domestic automakers, it is still too important and large to fail -- even though the automaker has already cut its U.S. workforce by more than 60 percent since the start of the decade, leaving them with just under 39,000 employees in America. To put that into context, according to CNN Money, “ that's only five thousand more people than electronics retailer Circuit City had when it went out of business this year -- and few thought the demise of Circuit City would cripple the economy.”
Chrysler now trails Toyota in U.S. sales and is struggling to stay ahead of Honda. So the news that the company could be forced out of business if it can't work out a combination with Italian automaker Fiat strikes some as not that big of a deal. "This is a company we can do without at least for the next couple of years without missing its production," said Kevin Tynan, auto analyst with Argus Research.
But other industry experts say it would be wrong to underestimate how much disruption a closing of Chrysler would cause to the already struggling auto industry. A shutdown of Chrysler could also have a sizable impact on the broader economy. A wave of bankruptcies and closures of auto parts suppliers, which employ more people than the automakers themselves, is probably inevitable if Chrysler is forced to go out of business.
"People thought Lehman Brothers going out of business wouldn't have that big an impact on the economy," said independent auto consultant Erich Merkle, referring to the Wall Street firm whose collapse triggered the problems in the credit and financial markets during the past six months. "Chrysler could be the Lehman Brothers of the auto industry." Chrysler will not discuss an organized shutdown or bankruptcy, instead focusing on a deal with Italian automaker FIAT and their future together. But what happens to Chrysler without a deal is not clear. President Obama has said that even if Chrysler or GM goes bankrupt, the government is not planning to have the companies liquidate and go out of business.
Speaking of FIAT, many automotive insiders and outsiders question whether an alliance with Fiat can and will be enough to keep Chrysler afloat. FIAT specializes in making small cars and is far from an industry juggernaut. According to the Financial Times, FIAT only sold about 5 percent more vehicles worldwide than Chrysler in 2008.
Michael Robinet, vice president of global vehicle forecasts for auto consultant CSM Worldwide, said in a Wall Street Journal article that he “….believes the government needs to start planning for the possibility of an orderly shutdown of Chrysler in order to minimize the impact on parts suppliers and other automakers.” He and other experts say the $5 billion in Federal help already announced for the auto parts industry won't be enough to stop further bankruptcies and closures. “That’s because this money will only be used to back a portion of the $7 billion in payments Chrysler owes to suppliers for work already performed. It also won't cushion suppliers from the loss of business in the future, and it won't cover all suppliers,” Robinet said.
Suppliers won't be the only ones hurt if Chrysler goes out of business. According to a New York Times article, “in the turnaround plan Chrysler has filed with the government, a liquidation would leave $20 billion in health care coverage for employees, retirees and its family unpaid, as well put $2 billion in annual pension payments at risk. The closing of its dealerships would cost 140,000 jobs. Due to the domino effect that would create, Chrysler estimates 2 million to 3 million jobs would be lost nationwide within three years, reducing household income by $150 billion a year, and cutting tax collections by an average of nearly $40 billion a year.” That, folks, is only an estimate of just Chrysler. Imagine if they shut down the General too. No wonder Toyota is offering public support to General Motors and the U.S. automakers.
With all that in mind, automotive expert Tom Libby is quoted as saying, “… the best reason for the government to keep Chrysler alive is that the economy and industry are too weak right now to weather even a controlled shutdown. There are so many things on verge of collapsing, do you want to see how far things could go if we lose Chrysler?"
So, as I was telling a couple of associates of mine, the closing of just Chrysler alone could and probably would have lasting and devastating global ramifications, let alone local. Normally, I talk about car culture and history in my articles, but with this article I think I share the same feelings as all of you. I am hoping that I get to write about the future of Chrysler and not just its history.
