Analyst: Chrysler could file, sell
DETROIT - Faced with soaring gas prices, a sputtering economy, and a rapid US market shift away from trucks, the US auto industry's weakest player, Chrysler, may have to file for bankruptcy protection or sell its storied Jeep and Dodge Ram brands as early as next year, JPMorgan said yesterday.
But rivals GM and Ford are likely to get through the rough patch and turn a profit in 2010.
JPMorgan auto analyst Himanshu Patel dismissed the possibility of an imminent bankruptcy at GM, saying in a conference call with investors and media that such fears "are completely overblown." The day before, GM shares slid to a 54-year low after Merrill Lynch auto analyst John Murphy wrote in a note to investors that a GM bankruptcy "is not impossible if the market continues to deteriorate and significant incremental capital is not raised."
GM shares rose 14 cents to close at $10.12 in abbreviated trading due to the Independence Day holiday.
Patel said the situation at Chrysler LLC is far more perilous because it has limited assets to raise cash and is more heavily reliant on trucks and on the North American market. Chrysler sales fell 22 percent in the first six months of this year.
Chrysler has had to release little financial information since the private-equity company Cerberus Capital Management LP bought it last year, but Patel estimated the automaker will burn through $4 billion this year and could be forced to file for bankruptcy protection or sell off parts of its business in the second half of 2009 if industry conditions don't improve.
Patel said it's difficult to predict the most likely outcome for Chrysler, but he said South Korean or Chinese automakers covet Chrysler's US distribution network. A bankruptcy filing could be a hit to Cerberus, which invested $6.1 billion in Chrysler as part of its acquisition and also backed a $500 million line of credit that Chrysler tapped last month.
"These are untested waters," Patel said.
Chrysler spokesman David Elshoff declined to comment, but earlier this week, president and vice chairman Tom LaSorda denied that Cerberus planned to sell Chrysler in pieces.
Patel predicted GM will burn through $18 billion in 2008 and 2009 as it struggles with depressed US sales - which Patel predicts will be at their lowest levels since 1993 - and a rapid change away from trucks and sport utility vehicles. GM has $24 billion in cash and $4.6 billion in credit on hand, he said, so it doesn't need to raise more money immediately. But he predicted the automaker will try to raise another $10 billion in the third quarter of this year by mortgaging trademarks, international operations, and other assets.
Murphy estimated GM needs to raise $15 billion and warned that cash is becoming increasingly scarce in the stressed capital markets. But Patel said GM shouldn't have difficulty raising the money.
"I don't think [lenders] are agnostic to the ripple effects of a GM bankruptcy," Patel said. "The argument that GM is too big to fail definitely works in its favor here."
Patel estimated GM will lose $6.9 billion this year and $4.3 billion in 2009 before swinging to a profit of $2.3 billion in 2010.
GM spokeswoman Renee Rashid-Merem said GM is confident it has enough cash to get through 2008 and has already revealed several cost-cutting actions, such as idling four plants that make full-size trucks and putting off the redesign of new trucks to focus on cars. She said the company is considering further measures, including obtaining more financing.
Ford, which mortgaged its blue oval logo and other assets in 2006 to borrow up to $23.4 billion for its restructuring, is in the best position cash-wise and can easily weather two years of a down market and swing to a profit in 2010, Patel said.
"Ford simply is not anywhere near as stressed on the balance sheet as GM is," he said. Ford shares rose 6 cents to $4.42.
Aaron Bragman, an auto analyst with consultant Global Insight, said Wall Street's views on the Detroit Three vary widely because of the uncertainty in the marketplace. Their turnaround plans were based on the false assumptions the economy would come back and gas prices would fall in the second half of this year.