In a moment of unusually blunt honesty, the Wall Street Journal reports that Chrysler CEO Bob Nardelli said this at a major meeting with employees:
“Someone asked me, ‘Are we bankrupt?’ … Technically, no. Operationally, yes. The only thing that
keeps us from going into bankruptcy is the $10 billion investors
entrusted us with.”
They’re not the only ones. Welcome to the iceberg’s tip.
UPDATE: Major melting in progress: Friday’s New York Times reports the U.S. auto supply chain is now also experiencing massive declines in stock prices.
December 22nd, 2007 at 2:12 pm
Hmm. I think that what’s in crisis here is a sort of hyper-Fordism. The kind of assembly-line manufacturing at the scale Ford actually pioneered is alive and well in all sorts of places.
I beleive hyper-Fordism fell into crisis when it failed to make the leap to mass-customization and instead pursued faux-personalization and cross-branding (ie. ‘Harley Davidson Limited Edition Ford F-150′).
Further, the kind of tightly integrated supply chain pursued in the name of efficiency, and which is dependent on forcasting, ended up sacrificing organic network resiliency, leaving manufacturers far more vulnerable to global systemic shocks and shifts just as the global marketplace was becoming far more turbulent and uncertain.
In short, many of these companies are trapped in a local (and temporary) maxima, but even if they go extinct other less specialized (but still Fordist) manufacturers will grow to fill their niche in the new environment.
December 22nd, 2007 at 3:50 pm
Michael – Nicely said. Did you see the recent story (I believe it was in Friday’s NY Times, still a day behind here) that the American supply chain is falling part. I recall a meeting/ interview Tim Sturgeon of MIT and I did about a decade or so ago when we were doing a big project on the global auto industry. We were talking with the top executive team at a major US supplier near Detroit, who said.” In the old days it was two martinis at lunch and a stiff drink after work, now its a bottle of vodka and antidepressants.” The Big Three just went after their supply chain with a vengeance and squeezed them, like they squeezed their workers for every last drop. Oh yeah, their was that short term burst around SUVs. Heading to Detroit for the holidays, I anticipate seeing block after block of for-sale signs. The upscale Somerset mall is now advertising in Toronto for shoppers: it’s a great place for super-markdowns after X-mas. .I just saw Ford is selling Rover and Jaguar to Tata….. Or as the English used to say “tah-tah.”…
December 26th, 2007 at 5:06 pm
Chrysler is a special case though. While the books and records may say that their liabilities are greater than the sum of their assets (excluding investors equity, apparently), smart people at Cerberus are betting that the franchise value is greater than the equity investment. I wouldn’t take this as a signal on the strength of the economy or the automotive industry. Portfolio magazine had a great piece on this during the fall, see here:
http://www.portfolio.com/executives/features/2007/08/13/Stephen-Feinberg-Cerberus
December 29th, 2007 at 6:50 pm
Coming back to this thread, hyper-Fordist manufacturing with tightly integrated supply chains may end up being the same sort of management fad as the diversified multinational conglomerate (for similar reasons):
http://www.oligopolywatch.com/2003/07/03.html