The Auto Writer

Of the three big US automakers, Chrysler LLC is in the most precarious position of all. Unlike Ford and General Motors, who have a significant presence overseas and can spread their costs and do a better job of absorbing losses, Chrysler derives 90% of its business from the North American market. Though sales in Canada are strong, in the U.S. market Chrysler is suffering the worst of any automaker this year, with sales down almost 23% through July.

Only The Avenger Gets 30 MPG Highway

Like General Motors and Ford, the lion’s share of Chrysler’s business for several years has been its pick up trucks and SUVs, providing the biggest profit margins of almost every vehicle the company sells. Its smallest vehicles, the Caliber, is hardly very fuel efficient, delivering 29 mpg on the highway, which is three miles per gallon fewer than what the bigger mid-sized Chevrolet Malibu delivers. This dearth of fuel efficient vehicles is hitting Chrysler the hardest, as the automaker is not able to turn to a Ford Focus or a Toyota Corolla to help ease the slide.

Roses Are Red, But Chrysler Is Not

Though parent Cerberus is painting the rosiest picture possible for Chrysler, what is evident is that the company is in dire straits.

Let us consider:

• The automaker is no longer offering leases for new car shoppers. Considering that approximately 20% of shoppers want to lease instead of buying, a better financing deal may not serve their needs. Who wants to pay off a car over five or six years when you can turn it in every 36-39 months for a new model?

• Chrysler has cancelled tuition reimbursement support for salaried workers. Ask any employee who is looking to advance their career what single enticement keeps them from bolting to another company and that would be tuition reimbursement. Just as Ford did this past June, Chrysler will no longer provide that benefit. Let’s see how many salaried people update their resumes and look for work elsewhere. Can you say, brain drain?

Cerberus Sitting On Cash?

Though the news for Chrysler is decidedly gloomy and getting actual financial data from the company is impossible (privately held, no requirement to make this information public), Cerberus says that the automaker is cash-flow positive and ahead of plan for the year.

In addition, Chrysler is getting rid of several low performing models, including the Dodge Magnum, and concentrating on selling the Jeep Patriot, its all-new Ram trucks, and its bread and butter minivans. Still, the lack of a high MPG gas powered vehicle is a glaring omission in the Chrysler portfolio, something Chrysler will not be able to overcome before the Dodge Hornet is released in 2010.

Cheap Gas Could Save The Day

Gas prices over the next several months will go a long way toward determining the viability of Chrysler, LLC especially if they start pushing toward $5 per gallon. With that scenario all bets are will be off. If gas prices continue their retreat from this summer’s high (now falling about thirty cents per gallon), then Chrysler can buy some more time. If prices drop below $3 per gallon, then some of the pressure on Cerberus is off, but maybe not by all that much — consumers will only think that the retreat is temporary with a fresh spike coming several months down the line.

No, I don’t want to see Chrysler fail, but when a company has very fuel models of significance to offer and the bloodletting worsens, bankruptcy may be the only way out. Should any one of the Big 3 automakers file for protection under U.S. bankrutpcy law, I’d hate to think what sort of domino effect that move would have on an already shaky domestic economy.