Global Insight Perspective | |
Significance | Three different executives, Chrysler vice president for North American sales Steve Landry, Daimler AG CEO Dieter Zetsche, and Chrysler CEO Bob Nardelli, have all spoken publicly over the last week about Chrysler's impending loss for 2007. Nardelli and Landry in particular have floated the prospect of a loss in excess of US$1 billion. |
Implications | Chrysler posted a US$1.5 billion loss for 2007; Zetsche stated that as early as this time last year, executives understood that Chrysler would not be profitable for 2007. Landry reportedly expects a loss for 2007, breakeven for 2008, and a hopeful return to profitability for 2009. |
Outlook | With the company now keeping financial data close to the heart, the leaks come as a surprise, and hint to some analysts and media that the public discussion of Chrysler's 2007 loss may be a precursor to the announcement of more personnel and production cuts. |
Three different executives tied to Chrysler LLC have publicly spoken out this past week about how they do not expect the automaker to turn a profit for 2007, a sign to some that the company may be preparing the media and employees for further cuts to the company's staff and production. It started on 30 November, when Steven Landry, Chrysler LLC's vice president of North American sales, spoke to a group of business students at St Mary's University in Halifax (Nova Scotia). In a speech to present a C$100,000 donation to the school on behalf of Chrysler, Landry stated that Chrysler is expected to generate US$64 billion in revenue for the year, but will spend US$65 billion, according to a local reporter.
Then on Tuesday (4 December), Daimler AG head Dieter Zetsche spoke with reporters in Washington DC at a breakfast to launch the Smart car. At that meeting, he spoke about how it was expected as long as a year ago that Chrysler would not make money in 2007. "There is no expectation of profit for this year [for Chrysler]," Zetsche told a reporters, according to the Detroit News. "For next year, obviously, especially every American manufacturer—but everybody has a tough time in the U.S., assuming the kind of market conditions we are all expecting." Daimler owns 19.9% of Chrysler after the deal in the third quarter to sell 80.1% to Cerberus Capital Management. "Obviously we don't hold this 19.9% stake in order to get the highest yield possible in any investment but as part of the transaction and a clear sign of support and cooperation going forward," Zetsche added.
And then finally the Wall Street Journal reports that current Chrysler CEO Bob Nardelli spoke to a group of engineers in suburban Detroit earlier this week, confirming that the company would lose US$1.6 billion for 2007. This comes on top of a publicly known US$1.5 billion loss for 2006. Nardelli reportedly told the assembled group that revenue would be below US$63 billion, while the automaker's costs would exceed US$64 billion for the year. Chrysler is now a privately held company, and is not required to report financial performance; no actual knowledge of how the US$1.6 billion loss is being measured is available.
Outlook and Implications
Chrysler has been very tight-lipped about its profitability and financial status since the ownership transfer to Cerberus Capital Management in August, for one very good reason: it is allowed to be. No longer is Chrysler tied to the quarterly reporting that many executives feel hinders making the right decisions, instead of making the ones that look good on paper and preserve short-term shareholder equity in exchange for longer-term hardships. By going private, Chrysler is freed from the need to give shareholders regular public updates and face scrutiny by Wall Street analysts, automotive experts, and shareholders at large. The company can make cash-intensive decisions that will affect change for the better, but which might look negative in the short term. The company has said that it has not decided how or if it will publish financial data publicly, instead claiming that it will determine that later in the year.
But then several executives with close ties to the company have publicly discussed Chrysler's financial situation, and in two cases, actual numbers have been released. With Chrysler being a private company, the deduction arises that the purpose of such actions is to prepare the public and the company's own employees for additional personnel and/or product cuts. The company has already announced that it would be laying off an additional 11,000 hourly and salaried employees just days after the ratification of a new United Auto Workers (UAW) union contract late in the third quarter; it has also announced that four models would be axed from the line-up sooner than anticipated. If it wishes to cut more personnel or production, one of the least painful ways to do it would be to make known how much progress the company still faces. With analysts and media unable to turn to a quarterly or annual financial report, and with only monthly sales data to go by, "leaking" the loss numbers for 2007 would help those groups better understand the more painful actions that the company could be about to take.