Fleet Managers React to Chrysler’s Chapter 11 Filing
By Mike Antich
On April 30, under the direction of the U.S. Treasury, Chrysler LLC and 24 of its wholly owned U.S. subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.
What impact will this action have on commercial fleets? To find out, Automotive Fleet conducted a survey of Chrysler's largest fleet customers. Here are the results of our survey.
Fleets Remain Loyal, but Take a Wait-and-See Approach
Most Chrysler fleet customers plan to remain loyal to Chrysler and believe in the long run a stronger company will emerge from the Chapter 11 bankruptcy. However, many are taking a wait-and-see attitude. "Presently, we are staying loyal to Chrysler. We will just have to wait and see what they will offer for 2010," said a fleet manager in the Southeast.
Another fleet manager echoed this sentiment. "Our future ordering will depend on Chrysler's recovery and reorg strategy. Right now, it's wait and see."
Some fleets were not surprised by the Chapter 11 filing. "Chrysler's filing for bankruptcy was expected and a good option at this point," said one manager of a light-duty truck fleet. "We have been a Chrysler customer for many years. We will continue to monitor Chrysler's status. If the pricing, fuel mpg, and expected lifecycle costs are favorable to our fleet, then we will continue to use Chrysler as a vendor. Adjustments are needed throughout the auto industry and Chrysler, with others, is creating their (and our) future."
The Chrysler Chapter 11 filing impacts some fleets more than others. "We're an all-Chrysler fleet, so this has a huge impact on us. We had already put together a team to look at alternatives for the 2010 model-year even though we have another year to go with our Chrysler agreement," said one fleet manager.
However, customer loyalty remains strong as exemplified by the comments of the following fleet manager: "I do not believe today's announcement will affect our decision to have Chrysler vehicles on our selector. Nearly half of our fleet vehicles are Chrysler products. We intend to continue to work with Chrysler in the future unless they eliminate the vehicles we have selected (Dodge Charger, Avenger, and Chrysler 300). I can only hope that we will continue to get the same incentives we have received over the past year or two."
Another area of concern is how the Chapter 11 bankruptcy filing, along with the overall macro-economic turmoil, may impact automotive suppliers. "This current situation is not only about Chrysler, it's about all of the ancillary suppliers and how this is going to wreak havoc up and down the supply chain," added a fleet manager.
Impact on Future Selectors
Some fleet managers report the voluntary Chapter 11 bankruptcy will influence selector decisions going forward. "We have had a relatively loyal relationship with Chrysler over the years, so we will certainly do what we can (within reason) to keep that relationship intact, and help Chrysler out where at all possible," said one fleet manager of a major diversified corporation headquartered on the East Coast.
A few fleet managers reported they had already shifted their fleet buy to other OEMs. "Due to the turmoil in recent months, we have opted to purchase more product from another OEM," said a Top 500 fleet located in the Midwest. "We have limited many Chrysler offerings in our selector for 2009 and probably 2010. However, we will not totally abandon purchasing their products while in bankruptcy," added the fleet manager.
Another fleet manager said Chrysler should have filed much earlier for Chapter 11 bankruptcy reorganization. "I believe they should have done it sooner, so they could have started to rebuild earlier. By dragging out this turmoil, it caused them to miss 2009 selectors and possibly 2010 selectors due to the late filing," said the same fleet manager. "We will have to see how fast they get things sorted."
Many fleet managers hope to have many of their questions answered at the upcoming 2010 Chrysler fleet preview to be held next June in Michigan.
Concern about Unbuilt Vehicles in the Production Pipeline
One area of concern is among fleets that currently have vehicles on order with Chrysler. There is uncertainty as to order delivery. "My current concern is that we have too many vehicles on order with Chrysler," said one fleet manager in New England.
Another fleet manager cited a similar concern. "We still have a good number of Chrysler products yet to be produced or delivered. This could definitely have an impact on our cycling of vehicles. It's too early to say if this will have an impact on the 2010 selector until we get more information."
Yet another fleet manager cites the same concern. "We also still have a number of vehicles on order that have not yet been delivered. Hopefully, we will get them at some point. Luckily, there aren't too many."
During an April 30 press conference, Chrysler Chairman and CEO Bob Nardelli said the company will temporarily idle most U.S. production facilities, effective May 4 through the bankruptcy proceedings and restructuring, expected to last 30-60 days. The production shutdown allows the automaker "to work through the bankruptcy," Nardelli told reporters. "We've done a good job at getting inventory down already, and on the other side [of the restructuring], we will be as lean as possible."
Chrysler has 23 manufacturing plants and facilities in the U.S., it said in court documents. Manufacturing facilities in Canada and Mexico will continue to run as long as they have parts, said Dianna Gutierrez, senior manager, labor relations and manufacturing communications for Chrysler. Chrysler also said in court documents that it has more than $5.7 billion in outstanding auto parts and service supplier invoices. Chrysler will continue to pay employee wages, suppliers, and dealer incentives during the hiatus, Nardelli added.
"The immediate impact we will feel are the shutdowns of the plants during the bankruptcy reorganization. This will delay our orders at least another 30-60 days, if possible we may try to cancel the outstanding orders," said one Midwest fleet manager. "Going forward and looking at our 2010 selector choices, we will still review the Chrysler products to be included in our selection, but may reduce the number of vehicles we offer from Chrysler."
Chrysler said it will keep fleet managers apprised and updated about the delays in its short-term production plan.
One possible outcome speculated by one fleet manager is that unbuilt 2009 models will be produced as 2010 models. "It appears a number of 2009 model-year vehicles currently on order will not be built as 2009 models," said a Midwest fleet manager.
Corporate Policies that Prohibit Sourcing in Such Circumstances
One major fleet stated flatly it will not be buying Chrysler products due to the Chapter 11 filing. "We do not buy from any manufacturer that is not financially sound, whether or not they are in bankruptcy protection," said one utility manager.
Another area of concern is the future of the Chrysler dealership network. "I'm very curious to see what the fate will be for the 3,300 Chrysler dealerships throughout the U.S. It is very important to us they have a sufficient channel to deliver their products throughout our 24 operating states," said a fleet manager.
Uncertainty about the Future
The most common theme that emerges in conversations with fleet managers is uncertainty. "There's a lot of information we need to know and a million questions that need to be answered before I can make any sound judgments about the future of Chrysler. These are uncharted waters we are heading in, and we need more information released before sound judgment can be made," said one fleet manager of a 1,000-plus vehicle fleet.