Saturday, May 2, 2009

Chrysler declares bankruptcy

Chrysler has declared bankruptcy. Not unexpected, but kind of a bummer. Megan McArdle takes a look at it; she thinks the unions won a Pyrrhic victory, sort of. She thinks that they got a better deal than the hedge funds, which will work out for the unions in the short term, but not in the long term, as it will make it very difficult for Chrysler to raise capital. The logic is that if you have a lot of money to invest, but you run the risk of losing your money to unions, then you don't have much incentive to invest your money, unless you get a really high rate of interest. Good point. I'm not sure how much I agree with it, but I think she has something there.

Dan Neil is not terribly optimistic. He doesn't see a lot of synchronicity between Chrysler, which makes a lot of money - or did make a lot of money - selling big trucks, and Fiat, which makes small, fuel-efficient cars. The one bright spot might be California's greenhouse gas regulations, which would benefit Fiat and, therefore, Chrysler.

Ironically, California's pending waiver request to the U.S. Environmental Protection Agency that would allow the state to regulate greenhouse-gas auto emissions would actually play in the new company's favor.

The state's request would in effect raise fuel efficiency for new cars by 30% by 2016. A dozen other states and the District of Columbia have said they would hew to the new California standards.

If California succeeds in imposing its own auto emissions/fuel economy rules, the Chrysler-Fiat alliance would be well positioned to quickly deliver smaller, more fuel-efficient vehicles to market.

After years of fighting California's clean-air rules, Chrysler may in the end depend on them for its survival.
I have a cousin who does PR for Chrysler in the western United States. He has an interesting job these days.

My thots are that if Chrysler does survive this, it will be in diminished form. One long-standing problem that Chrysler has had is that of finding and retaining top talent. I don't know any of this in detail, and I don't have any facts to back this up - it's pure speculation on my part. There are, I'm sure, lots of great people at Chrysler, like my cousin. But there are far more people at Chrysler who are, I suspect, merely good at their jobs, or maybe even not that good. Anyone who is essential to a car company and who is very good at their job - engineers, car designers, manufacturing experts - has a strong incentive to work for another car company. Traditionally, that would have meant Ford or GM. In the last twenty or thirty years in this country, it has also meant the Japanese companies. If you have skills that are not industry-specific, you have even less incentive to work for Chrysler. If you're a crackerjack software designer, and your options are working for Google or Chrysler, you're going to work for Google. If you have a Harvard MBA in finance, chances are somewhere between slim and none that you are going to choose Chrysler over, say, JPMorgan. The same could very well be true to a lesser extent in dealerships around the country.

Speaking of whom, the LA Times interviewed some Chrysler dealers around LA. These guys are masters of spin, but I am not encouraged by some of their comments. Some of them actually seemed to suggest that bankruptcy was a good thing, because it ends the speculation.

"It's all for the better to get the mysteries and question marks behind us."
I've got news for you, dude: the mysteries and question marks are not behind you. They are in front of you. One question has been answered: will Chrysler declare bankruptcy? Answer: yes. Two far more important questions have not been answered: one, can Chrysler make enough cars that Americans want to buy? and two, will Chrysler emerge from bankruptcy as a stable, flourishing company? Those questions have not been answered, and the first one in particular is going to take a long time to answer. Chrysler did not get into this situation overnight. It will take a long time for Chrysler to convince lots of the American people that it's a good idea to buy a Chrysler. This is particularly unhelpful:

"We've all been zigging and zagging these last few months, but now we're talking about facts," Gray said. "Everybody has a bounce in their step now. It's a good day to be a Chrysler dealer."
No, it's not. Chrysler has a huge, some would say impossible, task ahead of it. It's not just about negotiating between the UAW and hedge funds. It's not about negotiating the minefields in Washington, DC.

It's about regaining the faith of customers. The Big Three having been losing mindshare for at least a couple of decades. Chrysler has made some interesting cars lately - the PT Cruiser, the Viper, the Crossfire. But it has to make beautifully ordinary cars. It has to make cars that fit the average American like a great pair of jeans - utterly comfortable. It has to make them really, really well. And dealers have to provide world-class service on a constant basis and as if their jobs depend on it - because they do.

The one thing the UAW can do to help the process is stop whining. The whole "Buy American" argument is, at this point, an albatross. The idea that Americans should buy American cars puts the interests of the American car worker ahead of the interests of the American car consumer. I should buy a car because a guy in Flint made it? Great, is that guy going to read my blog, just because I'm an American? If I make a movie, is he going to watch it just because I'm an American? No, he's not. He's going to read my blog or watch my movie because he finds my blog interesting or my movie funny. You want me to buy a car because I should be proud to be an American? Fine, then make a car that makes me proud of American cars.

UAW workers get a great deal. They work hard, but they also have the "30 and out" thing going - they can retire after 30 years. Imagine this: a guy starts working for GM in 1930 at the age of 20, and retires at 50 in 1960. He could be alive and well, 49 years later, at the age of 99. He has been retired for almost half his life. Most Americans do not get anywhere nearly that good of a deal from their employers, and they feel no special affinity for people who do. And don't get me started on the jobs bank.

I would like to see Chrysler succeed, but my hope is fading. Many people - several hundred thousand - would suffer if Chrysler went under. But many more people - many, many more people, like tens of millions - wouldn't miss it.

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