Why a Chrysler Bankruptcy Won't Faze Car Buyers

If Chrysler declares bankruptcy or liquidates, it will be a historic corporate failure. But car buyers might not notice that much.

Executives at the No. 3 U.S. automaker have tried practically everything to stay in business, including an attempted marriage with General Motors last fall, begging the government for money, and now, a risky plan to merge with Italian automaker Fiat.

Nothing seems to be working. GM, which has severe problems of its own, said no. The Obama administration decided Chrysler is too small and weak to survive on its own. The only way the government will plow more money into Chrysler – beyond the $4 billion it’s already spent – is if the Fiat deal flies.

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But that looks endangered, too. Fiat has its own money problems, and it’s suddenly interested in buying GM’s Opel division, to strengthen its position in Europe. Merging with Chrysler, as a way to re-enter the U.S. market, may suddenly be a lower priority.

Meanwhile, Chrysler's creditors still haven’t made necessary concessions, which are required by the end of the month if Chrysler has a chance to avert bankruptcy. Consulting firm CSM Worldwide sees a 95 percent likelihood of Chrysler declaring bankruptcy, and the government is supposedly helping Chrysler prepare for a Chapter 11 filing.

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If that happens, it will directly affect 50,000 Chrysler workers, and thousands more at suppliers and dealers. But the impact on consumers will be much more limited. Here’s why:

Chrysler has been shrinking for years. The automaker’s market share is only about 11 percent, according to J.D.Power & Associates, down from 16 percent ten years ago. GM’s Chevrolet brand alone sells nearly as many cars as Chrysler’s three divisions. With overall industry sales down about 40 percent from their 2005 peak, there are simply too many automakers and too many dealers selling more cars than Americans want to buy. Even if Chrysler and all its brands disappeared overnight, there would still be an oversupply of cars and factories in the U.S. market.

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Chrysler’s vehicles are the wrong kind. When gas hit $4 per gallon last year and Americans downsized their taste in cars, Chrysler suffered more than any other automaker. That’s because it’s far more reliant on big trucks and SUVs than anybody else, even GM. “The inferior quality of its existing product portfolio and its heavy truck mix leave the company poorly positioned,” the government’s automotive task force declared in its March 30th findings on Chrysler. The Fiat deal was supposed to fix that, since Fiat builds some small cars popular in Europe. But under the best conditions it would take at least two years to start selling those here, and that would solve just part of Chrysler's problem.

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The company has few killer products. Out of 25 or so Chrysler, Dodge and Jeep nameplates, CSM counts only four as “unique:” The Jeep Wrangler, Dodge Ram pickup, Dodge Viper, and Chrysler Town & Country minivan. Most of the rest, like the Dodge Durango SUV, Chrysler Sebring sedan, and Jeep Patriot are similar to many other vehicles in the market – and in most cases, not as good.

The best vehicles will probably survive. If Chrysler declared bankruptcy, it could still end up in a kind of merger with Fiat or another suitor, such as Nissan, Hyundai, or a Chinese automaker. The difference would be a much more severe downsizing across Chrysler’s entire operation, resulting in fire-sale acquisition prices for the most valuable assets. If that happened, brands like Jeep and the Dodge Ram would probably survive in their current form. But the umbrella brand – Chrysler – is so weak that CSM predicts it could disappear entirely.

[See what it’s like inside GM’s fight for survival.]

GM and Ford could benefit. A lot of consumers still insist on buying from the Detroit 3, but few limit their loyalty to just one of them. That means many Chrysler customers could shift over to Ford and GM – which might be just the kind of help they need to fix their own problems. So patriotic buyers who want to spend their money supporting the home team will still be able to. There would just be fewer players on the team.