Is Chrysler Shutting Down for a Month, or Forever?

In Detroit, the endgame is getting closer

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Chrysler calls it an "adjustment." After the last shift on December 19, all of its factories will close for an extended holiday vacation. "Impacted employees will not return to work any sooner than Monday, Jan. 19, 2009," the automaker said in a statement.

If I were one of those impacted workers, I'd make sure to gather up all the personal stuff in my locker, and maybe grab an impromptu memento or two. Because this sounds like a break that might never end.

By now, everybody knows about the dire problems in Detroit: GM and Chrysler are at the brink of insolvency, with Ford only a little better off. Car sales this year are down about 20 percent from peak levels of a few years ago, with more pain ahead than behind: Next year, sales could easily fall below 12 million, a 30 or even 40 percent decline from the peak.

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The bailout drama in Washington has lumped all the Detroit automakers together, as if they're one monolithic car-making machine with three interchangeable labels. But they're not at all, and of the three, Chrysler is the most vulnerable, by far.  

So far this year, Chrysler's sales have dropped 28 percent, more than any other major automaker. In November, a better augur of what's likely to happen in 2009, Chrysler's sales plunged by 47 percent, compared to 41 percent for GM and 31 percent for Ford. The No. 3 automaker sold sold fewer than 3,500 copies of its flagship sedan, the once-hot Chrysler 300 - despite steep discounts. At such low levels you could build the car by hand, and still meet demand.

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Unlike GM, Chrysler isn't too big to fail. In fact, of all the collapse scenarios you could apply to Detroit, a Chrysler bankrupty - likely to end in some kind of liquidiation - might be the only one that the supplier network could withstand without widespread collateral damage that would threaten other automakers,  including the foreign "transplants" operating mostly in the south. And while a Chrysler bankruptcy would obviously be devastating for many of its 55,000 employees, it would also a major step toward solving an overcapacity problem that threatens many more Detroit 3 workers.

[See why bankruptcy could benefit GM.]

Chrysler also has the weakest hand in Washington, as the government dickers over whether to commit billions of dollars in loans to the struggling automakers. The idea of propping up unionized, industrial-era companies is unpopular enough, one reason Republican Senators were able to kill a modest set of loans for GM and Chrysler, forcing the Bush administration to seek a more creative way of helping the companies. Chrsyler has the added problem of being majority-owned by a private equity firm, Cerberus Capital Management, that's run by some of the world's wealthiest investors. Using taxpayer money to aid a few billionaires in New York is a tough sell, no matter how many Americans the rich guys employ.

[See why America is shunning Detroit.]

It's not even clear that Chrysler wants to keep operating on its own. Cerberus pushed hard earlier this fall for a merger with GM, which would have created an even bigger staggering giant. Chrysler CEO Bob Nardelli told Congress in recent testimony that he'd be happy with some kind of partnership, which sounded like a diplomatic way of saying, "Please, take this thing off my hands!" It's easy to conclude that the notoriously private Cerberus would dearly love to sell off the carmaker's pickup and minivan lineups, along with the valuable Jeep division, and cut its losses on the remaining underperformers.

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This could be the moment. Deliberations over the government bailout are going nowhere fast, and in a "restructuring plan" submitted to Congress, Chrysler said it needs $4 billion by Dec. 31 just to pay its bills and keep operating. If that cash doesn 't materialize, then the time between Dec. 31 and Jan. 19 may as well be 100 years.

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Chrysler
General Motors
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  • Rick Newman

    Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success and the co-author of two other books. Follow him on Twitter or e-mail him at rnewman@usnews.com.

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