If U.S. auto sales continue to fall, Chrysler LLC will have to ask the federal government for billions more beyond the $9 billion the Auburn Hills automaker has already requested.
That scenario was outlined in the restructuring plan Chrysler submitted to the U.S. Treasury on Tuesday, as part of the terms of the $4 billion loan the company received from the government in January. In Tuesday's submission, Chrysler asked for an additional $5 billion to help it weather one of the worst vehicle sales markets in decades.
Should U.S. vehicle sales fall below a certain threshold, Chrysler would fall into bankruptcy and begin winding down operations, according to the plan.
Chrysler's initial loan request for $7 billion submitted to the government on Dec. 2 -- the automaker received $4 billion -- was predicated on 11.1 million vehicle sales in the U.S. this year and the expectation that Chrysler would end 2009 with $7.5 billion in cash.
But an abysmal January and continued bleak sales outlooks have forced revisions in the company's calculations.
Chrysler's new request for $5 billion is based on U.S. sales of 10.1 million units this year, inching up to 10.6 million next year and hovering at 11.1 million for two years. In its restructuring plan, Chrysler outlined scenarios where it would need even more money.
If annual vehicle sales fall to 9.8 million at any given point, Chrysler would need another $2 billion from the federal government -- bringing its overall total to $11 billion.
A drop to 9.1 million units would trigger the need for $4 billion -- $13 billion in total -- and "we believe even with (a partnership with) Fiat SpA, Chrysler will struggle to be viable and will require an additional restructuring and funding," the report said.
If the industry drops to 9.8 million, it's all a moot point because it will mark a global depression and the collapse of the industry, said Jim Hall, analyst with 2953 Analytics in Birmingham.
February sales are expected to be worse than January's 37.1 percent drop, predicts Joe Phillippi, analyst with AutoTrends Consulting Inc. in Short Hills, N.J. "If the market continues to get worse, it's going to be pretty dicey."
Chrysler is prudent to plan for the worst, he said, as it will likely continue to lose market share.
"People are not going to trust going into a Chrysler/Jeep/Dodge store and putting their money down" he said.
Meanwhile, the automaker is confident its plan merits government money. It includes a willingness to convert a further $2 billion of debt to equity by owners Cerberus Capital Management LP ($500 million) and Daimler AG ($1.5 billion).
The automaker still needs $5 billion of relief from its $27.8 billion in debt, which can come from shareholders, banks, creditors, the United Auto Workers, the government or any combination. The plan outlines four alternatives to reduce debt, including converting it to common equity, preferred stock and cash.
Standard & Poor's Ratings Services said it views all such moves as "distressed exchanges" and "akin to a default," but did not further downgrade Chrysler.
Moody's Investors Service said it does not rule out Chapter 11.
Chrysler recognizes the risk.
"If our liabilities are not restructured and U.S. Treasury additional funding is not received by March 31, 2009, Chrysler LLC will not have ample liquidity to operate," the plan states. That would trigger an "orderly wind down" of its operations, resulting in the loss of more than 300,000 Chrysler, supplier and dealer jobs.