Chrysler, R.I.P.

As Chrysler commemorated its first anniversary under the ownership of private-equity player Cerberus Capital Management this summer, CEO Bob Nardelli issued a five-page letter to rally the troops. After all, things hadn't really worked out as Cerberus expected when it paid $7.4 billion to take Chrysler off Daimler's hands in 2007. Rather than "restoring an American icon," as Cerberus chairman John Snow declared back then, Chrysler sunk even further into the muck as gas prices soared and showroom traffic came to a standstill. Chrysler's guzzler-heavy lineup of SUVs and trucks did worse than most, with sales plummeting 25 percent and profits nowhere to be found. Still, Nardelli, once an acolyte of GE's Jack Welch, oozed optimism when he closed his long letter with these words of encouragement: "Chrysler may be down, but we're a long way from out. It's time for us to prove the naysayers wrong with another one of our patented comebacks!"

But it looks like Chrysler has run out of comebacks. Shortly after Nardelli wrote those words, Cerberus entered talks with General Motors to unload its Motown mistake. Despite reports of an impasse, a deal still appears to be just around the corner—if GM and a growing chorus of politicians can convince the federal government to put up $10 billion to $15 billion to finance the two ailing automakers' marriage of convenience. That means Chrysler, after defying death for decades, will finally succumb. Analysts expect GM to slash 34,000 Chrysler jobs—half its workforce—and shut down production of all but a handful of its slow-selling models. "Chrysler as we know it will cease to exist very soon," says auto consultant Kimberly Rodriguez of Grant Thornton, which predicts half of Chrysler's 14 factories will close.

It's an ignominious end for the company of Lee Iacocca and once-hot models like the Dodge Viper, PT Cruiser and the Hemi 300C. Daimler, which paid $36 billion for Chrysler in 1998, put a fitting coda on its investment last week. It valued its remaining 20 percent stake in Chrysler at zero.

So why would GM want a worthless automaker? Well, it certainly isn't about Chrysler's cars. It's about the cash. Chrysler said it had $11.7 billion in the till this summer, and GM desperately needs that money to survive. It also wants to get rid of one of its crosstown rivals so it doesn't have to match the outrageous rebates Chrysler puts on its models any more. "The real reason GM is doing this is to get their hands on that cash," says auto economist Sean McAlinden of the Center for Automotive Research, "and to put their competitor down. It's called 'buying the business.' In that way, you save GM."

If this sounds ruthless, that's because it is. GM is backed into a corner, running out of money, time and options. Its sales have tanked, it has lost $18.8 billion so far this year, and bankers will no longer lend it a penny. It's burning through more than $1 billion a month, and Wall Street expects it to run out of money by the middle of next year. To raise funds, GM is desperately trying to sell assets—the Hummer line, its riverfront headquarters—but has found no takers. Chrysler's cash stash might be its last hope. To put that money to work for its own interests, though, GM has to hollow out Chrysler. "GM will be hard pressed to clean out the Chrysler organization as quickly as possible," says University of Michigan business professor Gerald Meyers, who was CEO of American Motors when Chrysler bought it in 1987. "It's a nasty job."

But GM won't just get quick cash from Chrysler. It will also acquire substantial liabilities. That $11.7 billion came to Cerberus in the form of loans from banks, which expects that debt to be paid, with interest. There's also a new union fund that covers workers' health-care costs, to which GM will be expected to contribute $11 billion. Then there are all those workers and dealers who will have to be culled with billions in buyouts. Combined, the two companies will employ 205,000 workers in North America and have 22,000 dealers—half the total number of showrooms in the America.