Chrysler Suppliers are demanding cash

[Modelworks]

I don't know that a bailout can fix this.
When your suppliers want cash for materials and don't trust you for credit, that is tough to fix.

http://www.autonews.com/apps/p...2/ANA02/812129995/1128

December 12, 2008 - 1:14 am ET

DETROIT -- Chrysler LLC's suppliers have begun asking for cash on delivery for auto parts, the Associated Press reported late Thursday, citing an interview with executives. Vice Chairman Tom LaSorda and Chief Financial Officer Ron Kolka said suppliers and other vendors have demanded COD, but the company is "fending them off," the AP said.

When suppliers demand COD from a troubled company such as Chrysler, it can cause chaos in the company's financial structure.

Chrysler's cash will drop to $2.5 billion by Dec. 31, company officials have said. That's the bare minimum the automaker needs to make payroll and pay suppliers, according to the report. Chrysler pays its suppliers $7 billion every 45 days, Kolka told the AP.

"January, first quarter is a big problem for us," Kolka said.

Chrysler's depleted cash situation underscores the financial crisis faced by the Detroit 3 as a federal government loan bailout failed late Thursday evening. Without an immediate infusion of cash, both Chrysler and General Motors have said they could run out of funds to operate their businesses by the end of the year.

Chrysler has scheduled a meeting Friday with its suppliers, but LaSorda told the Associated Press the company will not ask for concessions. Suppliers know that concessions, either price reductions or longer payment terms, are likely, and the company wants to work with them to reach the numbers, LaSorda and Kolka told the AP.

Kolka acknowledged "quite a few" Chrysler suppliers now are asking for cash.

"The biggest risk we have is our suppliers coming and saying 'I want to be paid on delivery,'" Kolka told the AP. "We can't do that. The math just doesn't work."

Chrysler and GM now must develop a plan to operate after Thursday night's events in Congress.

"Chrysler is obviously disappointed in what transpired in the Senate and will continue to pursue a workable solution to help ensure the future viability of the company," the company said in a statement released late Thursday.

Chrysler is owned 80.1 percent by private equity fund Cerberus Capital Management LP ? and 19.9 percent by its previous controlling shareholder, Daimler AG of Germany.

 

[Genx87]

I really like how Chrysler waited until the last minute to ask for a handout. A nice finishing touch imo.

That said who owns the private equity fund and who did they contribute to?

 

[StageLeft]

Chrysler is finished.*

* without a constant cash infusion long-term

 

[JS80]

Originally posted by: Skoorb
Chrysler is finished.*

* without a constant cash infusion long-term

mmmm...i wonder if this will cause contagion to other LBO paper...

 

[zephyrprime]

Oh the big three, chrysler is in the weakest economic position. It's sad to see since they were one of the most profitable car companies before the buyout by daimler.

 

[Lemon law]

There is an error assumption about cash on delivery, if a supplier does not think they will be paid for their product, they will demand cash up front. Because what the supplier does is to tool up to make some given part or assembly, they pay for the various raw materials and labor themselves, then when they finally deliver the order, and in the normal course of business, they get paid 30-60 days later.

But if they think they are not going to get paid period, and they have the product already made, they are up the creek without a paddle, because the product they made is valueless to anyone but the one auto company that ordered it.

 

[StageLeft]

Originally posted by: Lemon law
There is an error assumption about cash on delivery, if a supplier does not think they will be paid for their product, they will demand cash up front. Because what the supplier does is to tool up to make some given part or assembly, they pay for the various raw materials and labor themselves, then when they finally deliver the order, and in the normal course of business, they get paid 30-60 days later.

But if they think they are not going to get paid period, and they have the product already made, they are up the creek without a paddle, because the product they made is valueless to anyone but the one auto company that ordered it.

Well, they can potentially have one order unpaid for. Otherwise, they could have more; if they "sell" but haven't received the cash and start manufacturing for the next expected order, but the cash for #1 never comes through, they're doubly-hosed.

 

[cubby1223]

Curious, we hear about how nobody is buying new cars, dealerships have stockpiles of unsold cars...

Could the auto makers just stop producing for a week or two or three? Not buy new parts for new cars? Wouldn't that save a lot of money?

 

[StageLeft]

Originally posted by: cubby1223
Curious, we hear about how nobody is buying new cars, dealerships have stockpiles of unsold cars...

Could the auto makers just stop producing for a week or two or three? Not buy new parts for new cars? Wouldn't that save a lot of money?

They do this quite frequently.

 

[dphantom]

Originally posted by: Skoorb

Originally posted by: cubby1223
Curious, we hear about how nobody is buying new cars, dealerships have stockpiles of unsold cars...

Could the auto makers just stop producing for a week or two or three? Not buy new parts for new cars? Wouldn't that save a lot of money?

They do this quite frequently.

All the time. Save money - only the variable costs. Fixed costs are still there and IIRC union contracts have laid off workers paid at 90% of wages. So, not really saving a lot of money.

 

[evident]

chrysler didnt pick the right perks for their mission <g>

 

[Ktulu]

Originally posted by: cubby1223
Curious, we hear about how nobody is buying new cars, dealerships have stockpiles of unsold cars...

Could the auto makers just stop producing for a week or two or three? Not buy new parts for new cars? Wouldn't that save a lot of money?

Rumor has it that GM will shut down all N.A. plants for all of January and the first 2 months of Feb.

http://www.ctv.ca/servlet/Arti...12/20081212?hub=Canada

On Friday morning, General Motors confirmed that it will stop virtually all North American production in January. That would cut 250,000 vehicles from its first-quarter production schedule. In all, 21 factories across North America will be affected.

 

[RU482]

Originally posted by: Lemon law
There is an error assumption about cash on delivery, if a supplier does not think they will be paid for their product, they will demand cash up front. Because what the supplier does is to tool up to make some given part or assembly, they pay for the various raw materials and labor themselves, then when they finally deliver the order, and in the normal course of business, they get paid 30-60 days later.

But if they think they are not going to get paid period, and they have the product already made, they are up the creek without a paddle, because the product they made is valueless to anyone but the one auto company that ordered it.

haha, especially a part that goes into a Chrysler
/sorry, I had to

 

[evident]

die chrysler die

 

[Vette73]

Originally posted by: Genx87
I really like how Chrysler waited until the last minute to ask for a handout. A nice finishing touch imo.

That said who owns the private equity fund and who did they contribute to?

Chrysler does not really need a hand out/bailout. The company that owns over 80% have plenty of money. It has not been that long since they bought them. Why buy them if they were not ready to invest in the company.

 

[gotsmack]

I'll be able to get a great deal on a 09 Jeep Patriot in Jan/Feb!