Today Hot Report

TRAVERSE CITY — Fears of Chrysler LLC’s imminent demise are overblown but the newly private automaker poses risks to the rest of the auto industry with its dramatic changes, a reputable industry analyst said Thursday.

Business partners — from parts makers to dealers — face special risks because of secrecy around Chrysler’s financial status and the expectation that it will ultimately be sold off to other automakers, Mark Warnsman, a Calyon Securities analyst, wrote in a note to investors Thursday.

“Even as the prospects for the U.S. auto industry will improve when the economy turns the corner, Chrysler may prove to be a drag on that recovery,” Warnsman wrote. “As a large, newly private concern Chrysler has and, in our view, will continue to present a challenge to the remainder of the industry as the industry adapts to the reality and potential for sharp changes in the competitive landscape driven by Chrysler’s actions.”

Cerberus Capital Management acquired majority control of Chrysler a year ago, making Chrysler the first privately held major U.S. automaker in more than 50 years. Dramatic changes have followed, as its U.S. sales have dropped more than 20% so far this year.

Chrysler has announced plans to cut 15,000 jobs on top of 13,000 cuts already planned, eliminated four models, took out 1.1 million units of capacity and stopped offering leases through Chrysler Financial. Chrysler has partnered with automakers, including Nissan Motor Co., to add to its lineup and is in talks with automakers in Italy, India, China and Russia about potential deals.

“Chrysler has embraced its status as a private entity as an enabler for a series of decisions that, at best, are unsettling to the rest of the industry. At worst, they could prove to be highly disruptive,” Warnsman wrote.

On Wednesday, Tom LaSorda, a Chrysler president and vice chairman, again stated that Chrysler’s majority owner Cerberus Capital Management is a long-term investor and that Chrysler is meeting all key financial metrics.

But the statements continue to be questioned. “Cerberus may be a long-term investor, but we see it exiting its Chrysler stake within five years of its initial acquisition,” Warnsman wrote. “We like a partnership-to-sell model as the primary means for Cerberus to realize value as it first finds partners for key parts of Chrysler’s business and then completes a sale of those parts over time.”

Warnsman sees a total sale of Chrysler intact or issuance of an IPO as “less likely” and bankruptcy as “a more remote possibility. … We consider concerns regarding Chrysler’s imminent demise as overblown.”

At issue, according to Warnsman, is the lack of transparency regarding Chrysler’s finances and the impact it has on groups affected by Chrysler’s business, such as suppliers and dealers.

Chrysler is showing some entities its books to assure them about the automaker’s health, LaSorda indicated this week. “Nissan did quite a bit of due diligence before deciding to turn its truck platform over to us,” LaSorda said, noting it wouldn’t have done that “if they were concerned about our long-term survival. They’re not. They’ve seen the numbers.”

In recent weeks, Chrysler has become more vocal about its finances, stating it has $11.7 billion in cash and securities and had $1.1 billion in earnings before interest, taxes, depreciation, amortization and restructuring charges — a number that indicates cash flow but not net profit or loss.

“There is simply less of a warning system surrounding Chrysler than there is around a public company,” Warnsman wrote. The lack of U.S. accounting-compliant “quarterly financial statements and the analysis and comment that usually accompanies their release contributes to an environment where the potential for unexpected surprises, likely negative, increases, in our view. Less information equals more uncertainty for the industry and that uncertainty raises the level of risk for investors, increasing the return sought and, potentially, placing a drag on sector valuations.”

Speaking on the sidelines of the Management Briefing Seminars on Thursday, Nancy Rae, Chrysler executive vice president for communications and human resources, said the automaker has been reacting to the desire for more information.

“The last few weeks, we’ve been much more transparent on our financials than we had been. It was a bit of a response from that feedback,” Rae said.