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Chrysler faces possible break-up as cash drains away

(Agencies)
Updated: 2008-11-07 16:10

DETROIT -- Chrysler LLC is rapidly burning through cash and being driven to prepare for a possible break-up if it can't clinch a merger with General Motors Corp or get government funding needed to ride out the economic crisis, people with knowledge of the situation said.

A Chrysler vehicle is shown for sale in Carlsbad, California, October 29, 2008. [Agencies]

Without new funding or a wrenching restructuring, executives have raised concern about the automaker's ability to finance its operations from existing cash beyond the first half of 2009, said the sources, who were not authorized to discuss Chrysler's performance.

Chrysler has had to pay out over $100 million a month to support strained suppliers on top of a total $200 million support to sales through dealers in August and September as it suspended vehicle lease financing, the sources said.

The $11.7 billion the struggling automaker said it had as of end-June has seen a substantial decline because of the company's deteriorating performance marked by a 35 percent slide in October sales and increasing cash incentives, they said.

Chrysler and its owner Cerberus Capital Management LP declined to comment.

Cerberus and GM had agreed last month on the broad terms of a merger of Chrysler's loss-making auto operations and those of its crosstown rival but the deal foundered when the Bush administration rebuffed a request for some $10 billion to support it, sources have said.

That setback has put the focus on winning support for a broader federal rescue package for GM, Chrysler, Ford Motor Co and their suppliers that the industry argues would save jobs and protect benefits for retirees.

But Chrysler has been forced to consider a more drastic set of backup plans that could include selling off key business lines, including Jeep, considered its most valuable brand. It may also outsource its finance and human resources, sources said.

As a step toward that hard-landing scenario, the automaker is moving to split up its replacement parts business based on brand so that its Chrysler, Jeep and Dodge operations could be completely separate, one source briefed on that plan said.

That could make it easier to sell off an individual brand.

Chrysler Chief Executive Bob Nardelli joined GM CEO Rick Wagoner and Ford CEO Alan Mulally on Thursday in meetings with US House Speaker Nancy Pelosi and Senate Majority Leader Harry Reed.

The three automakers lobbied the Democratic lawmakers, who increased their power in Tuesday's election that also saw Barack Obama elected president, for up to $50 billion in federal aid, sources said.

The sharp decline in US auto sales that began in the summer and has since accelerated has hit Chrysler particularly hard.

US sales of the Chrysler, Jeep and Dodge brands were down almost 26 percent this year through October, and Chrysler's market share has slipped to just 11 percent in October, putting it in an almost dead-heat with Honda Motor Co for the No. 4 spot in the US market.