Make of this what you will. It is either political posturing or the beginning of the end for Chrysler. They announced today that they will shut down their entire production until the 19th of January and also announced steps that materially change their floorplan financing for dealers.

The announced production cutback is ostensibly being made in order to bring inventory and future production into line with current demand for automobiles. That would make sense but it would also make sense to begin conserving cash in anticipation of a chapter filing. Of course, it’s not out of the realm of possibility that the company is trying to keep the problems of the industry on the front pages of the papers in order to push the administration towards some sort of assistance.

The change in the dealer financing arrangements appears to have two goals. One is to stop the drain on the company’s fund that is used to fund dealer inventories. Dealers have been withdrawing as much as $60 million a day from it, possibly in anticipation of a bankruptcy. The other goal would seem to be to force out some of the less viable dealers. Cutting franchises unilaterally on the company’s part is very expensive but if you can get a dealer to leave voluntarily, there is of course no cost.

I’ve said it before and it’s worth repeating. There is too much productive capacity in the U.S. in the automobile industry. It has to be downsized and sooner rather than later. Unfortunately, downsizing isn’t usually accomplished by everyone taking a smaller piece of the pie. Generally, the weakest producers pass into history. None is weaker than Chrysler.

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