Chysler Cash Will Run Short in Jan.

Chrysler is nearing the minimum level of cash it needs to run the company and will have trouble paying bills after the first of the year, according to its chief financial officer.

2007 Chrysler 300
David Zalubowski
2007 Chrysler 300

In an interview with The Associated Press Thursday night, Vice Chairman Tom LaSorda and Chief Financial Officer Ron Kolka also said some parts suppliers and other vendors have demanded cash on delivery but the company is fending them off.

Chrysler has said its cash will drop to $2.5 billion by Dec. 31, the minimum needed to meet payroll, pay suppliers and run the company. With the U.S. sales slump expected to continue into January, one of the slowest sales months of the year, the company has little revenue coming in and must pay suppliers $7 billion every 45 days, Kolka said.

"January, first quarter is a big problem for us," he said in a rare interview about the company's finances.

Chrysler is privately held, with 80.1 percent owned by New York private equity firm Cerberus Capital Management. It is seeking $7 billion in government loans as it tries to survive the recession and the worst U.S. auto sales slump in 26 years.

General Motors , which is in similar financial straits, is seeking up to $18 billion in loans, while Ford Motor Co. says it has enough borrowed cash to make it through 2009. But Ford wants a $9 billion line of credit it can tap in case of emergencies.

The Senate, however, rejected the $14 billion auto-industry bailout bill late Thursday after the United Auto Workers refused to accept Republican demands for swift wage cuts.

Senate Majority Leader Harry Reid said he hoped President George W. Bush would tap the $700 billion Wall Street bailout fund for emergency aid to the automakers. The White House said it was evaluating its options.

Chrysler has scheduled a meeting with its suppliers on Friday to talk about its business plan, but LaSorda said it will not ask for concessions at that time. Suppliers are well aware that concessions, either price reductions or longer payment terms, will be required as part of the federal loan legislation, and the company wants to work with them to reach the numbers, the executives said.

Suppliers, Kolka said, became nervous after the first round of loan hearings before Congress in November, with "quite a few" asking for cash on delivery.

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

Chrysler, he said, must pay about $7 billion to suppliers every 45 days under a "just-in-time" parts delivery system used by the industry. With 18 straight months of industry sales declines and a 40 percent cut in revenue, Chrysler can't afford to accelerate payments, and certainly can't do it for some and not others, Kolka said.

"So we just have to resist, and that's what we've been doing," he said, adding that most larger suppliers have not made such demands.

"If I had to pay $7 billion tomorrow before I get all my parts, there is no Chrysler. Same thing with GM and Ford. You just don't have enough money to pay it," he said.

Bankruptcy and restructuring experts say if one parts supplier stops shipping, it could stop automakers from building vehicles, forcing the companies into Chapter 11 bankruptcy protection.

Some suppliers, LaSorda said, have threatened to stop shipping but so far no Chrysler factories have had to be shut down due to lack of parts. If a supplier stops shipping and shuts a Chrysler plant down, "We will definitely expose who does it," LaSorda said.

A large oil company that is posting profits of $20 billion to $30 billion has demanded cash on delivery, as has a utility company, the executives said.

"The multibillion oil company threatening Chrysler. If you don't pay us in advance, we're not going to ship you oil," said LaSorda, who would not identify the company.

One Senator has suggested that Cerberus put more money into Chrysler rather than the automaker seeking government loans. But Cerberus, Kolka said, can invest only a small amount more in Chrysler because its corporate governance limits the amount any of its funds can place in a single investment.

Cerberus purchased its share of Chrysler last year from German automaker Daimler in a $7.4 billion deal.