A Better Deal for Delaware

DaimlerChrysler AG will sell 80.1 percent of its money-losing Chrysler Group to private equity firm Cerberus Capital Management LP for $7.4 billion.

DaimlerChrysler AG’s Chrysler Group plans to build two new plants in Michigan and upgrade three others.

It said that Chrysler would keep its heavy obligations for pensions and health care costs, a key issue complicating DaimlerChrysler’s effort to sell the division.

Isn’t it time we made plans for a new industrial/technology park at the Chrylsler site? It is clear the plant will be closed and probably sooner than the previously announced.

A very meager $50 million seed fund from the $5 billion plus Delaware Pension Fund would go a long way to jump starting the transition.

There are rampant rumors that GM might but Chrysler. How is that possible ad GM is in the middle of it s own recovery and Chrysler is in the process of cutting one sixth of its jobs?

Well, the entire auto industry is going to go through what we in the airlines went through but it will be quicker and worse. Remember USAIRWAYS somehow got $10.2 billion in financing to but Delta Airlines even though USAIR had been in bankruptcy twice in five years. So, those who think it can’t happen I think it can.

A German publication, Manager Magazin, reported that Daimler-Chrysler Chairman Dieter Zetsche had met with General Motors Chairman Rick Wagoner about a possible sale of Chrysler to the No. 1 U.S. automaker, which has itself been struggling, cutting jobs and closing plants.

The Chrysler assembly line in Newark, Del., which the company announced Wednesday it intends to close by 2009.

Zetsche and other company executives would not comment specifically on that report, other than to say the company was looking at various options for its troubled American unit.
“Please understand we can not provide you with any more details at this point in time,” Zetsche said at a news conference at Chrysler’s Auburn Hills, Mich., headquarters.

Not exactly a strong denial.

What does Delaware do??

Plan for the future by doing an all out effort to replace the jobs and economic impact of the car plant. Things like gross receipts break for companies that expand into the new site? How about some EPA relief for the companies who decide to move jobs and resources there? What about a major bio tech or research park? We have 24 months to do something.

Last thought, why not get another car manufacturer to come in. Did you know BMW sells more autos in the U S than they do in Germany??

By now everyone knows that Chrysler has mentioned the possibility that the Chrysler plant could be closed. Sure, there is speculation in many circles but for my part I think the writing is on the wall.

Here is why. Chrysler’s market share has declined from 14.5% in 2000 to 12.9% in 2005. When five plants were closed in the early part of Dr. Dieter Zetsche’s era at Chrysler, he clearly has admitted he didn’t go far enough to cut costs in 2003 when negotiations with UAW. He vowed he will not make this mistake again.

The problem is simple, Chrysler is built to be a auto maker with 15-16% of the auto market, but it isn’t. The reliance on extensive discounts to fleets and the average of four months to sell an auto does not bode well for Newark. The Durango has lost about one third of its market share and 90% of it suppliers are in the Midwest. A great product built by good workers that is facing the realities of fuel prices and corporate difficulties.

Possibly, Chrysler can do a better job of how it provides cars to buyers. Unbelievably, Chrysler decides the mix by using a formula to maximize profits not customer satisfaction. Funny thing but thinking that corporate minds can determine the best cars to order rather than letting Dealers order for a customer is revealing.

What can Delaware do? The gross receipts tax could chop only a couple million dollars off the bottom line and it appears any action on Health Care is way too late and the recent energy increases did not help either. No, it appears that the time for action has come and gone. Workers and families deserve better.

Lastly, “the Marriage of Equals” between Daimler and Chrysler seems to need counseling.

There is no bigger and deeper tailspin in industrial America than the auto industry. I went through something similar with the airline industry from 2001-2006 and we had it bad, real bad. The auto workers are in for much, much worse. Let me mention that the average Airline Pilot lost about one third of his/her pay and all of their pensions.

Let me mention two facts; it is not economically viable for an auto plant to operate on a single shift and a reduction of one third in your model sales is profound and deep. Both of these apply to the Chrysler Plant. Still, even if the plant survives in the short run it is doomed in the long run.

In 2006 all three major US makers are going to be in the Red, big time. Ford lost $12.7 billion for the year, GM has had to restate earnings because of “accounting errors” and Chrysler is in the red and will launch a restructuring plan that will go deep.

There will be some tough times for auto workers and we will offer some thoughts on how to “save” the industry from itself and from the government.

A few parting points;

GM says it has $26.4 billion in cash, the PBGC says it has an unfunded pension obligation of about $30 billion.

Ford doesn’t foresee a profit until 2009.

All are losing market share.

Your thoughts?