Things are pretty bad right now in Detroit, but could the Big Three’s financial situations be even worse than first thought? A new report finds that all three of the U.S.’ major automakers are burning through cash reserves at an alarming rate, with the downfall of Chrysler more likely than not.
It’s difficult to exactly know what’s going on behind closed doors at Chrysler – since the automaker is privately held by Cerberus – but what is known doesn’t look too good for the Michigan-based automaker. In addition to burning through $2.5 billion in cash reserves this year, Chrysler’s lack of future vehicle plans could be an indication that Cerberus is preparing to break up the once proud automaker.
“ Chrysler ’s product pipeline severely lags the industry on a number of key metrics, which is an ominous sign for its market share,” Merrill Lynch’s recently issued “Car Wars” report said. “We believe that this is an active decision by new owners to rationalize the product portfolio in advance of a breakup/sale.”
According to the Detroit Free Press, Chrysler is planning to replace 51 percent of its current lineup with new models in the next four years, whereas most other automakers will replace 66 to 80 percent of their lineups.
Chrysler continues to deny bankruptcy rumors and Cerberus insists it has no plans to sell Chrysler in the next 5 to 10 years, but the writing could already be on the wall. Chrysler relies on thirsty trucks and SUVs for about 70 percent of its sales, with no new cars in the works for at least two years. Chrysler’s sales were down nearly 20 percent through May, with sales expected to plummet 31 percent in June.
Much like GM’s Hummer brand, Chrysler’s Jeep brand could be on the chopping block. A 2007 analysis of Jeep revealed it could fetch $5.3 billion on the auction block but, due to current economic conditions, the brand would now be worth far less.
General Motors and Ford are both in a better position than Chrysler, but neither are completely out of the woods. GM is on pace to burn through $1 billion a month for the rest of the year with a cash burn of $6.3 billion expected in 2009, according to Automotive News. If those predictions hold true, GM would be left with only $8.7 billion in cash by the end of 2009.
Ford is in slightly better shape with $29 billion in cash on hand, but the Dearborn-based automaker is expected to burn through $14 billion by 2009.
