Chrysler is operationally bankrupt

December 25, 2007

Is this announcement foreshadowing a terrible 2008?

Chrysler was sold to private equity firm Cerberus just 4 months ago for a fraction of what Daimler acquired it for several years earlier. The company has a few popular products but was an overall perennial loser for the German automaker. It seems that under the new private ownership, nothing has yet changed. CNN is reporting that Chrysler, according to its CEO, is operationally bankrupt.

This is significant because Chrysler needs to raise $1 billion by selling off assets. In the good old days they may have been able to borrow some money and delay their “bankruptcy” a few more years, but today conditions have changed and corporations are forced to manage their businesses more responsibly.

That is of course a good thing, but the economy could get much worse before it gets better. If many companies find themselves in a similar situation and are forced to liquidate assets, next year could be ugly. These days smart money is on the sidelines waiting for good opportunities. If Chrysler is any indication of market conditions, there will be plenty.