Can Chrysler survive prolonged U.S. slump?

By Nick Carey and Poornima Gupta - Analysis

DETROIT (Reuters) - This town may not be big enough for the three of us.

As U.S. consumers struggle in the face of tight credit, rising prices and job losses, auto industry experts say that a prolonged slump could cut the Detroit Big Three -- General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Cerberus-run Chrysler LLC -- down to the Big Two.

Chrysler is widely perceived as most vulnerable, although it says it is meeting its financial goals.

"Chrysler is certainly the weakest of the three," said Erich Merkle, an automotive consultant at Crowe Horwath.

Some in the industry say 2009 will be a pivotal year for the Big Three.

"I think there will three (U.S. automakers) going into next year and next year will be a telling point whether three emerge," Tom Stallkamp, an industrial partner at New York private equity firm Ripplewood Holdings and a former president of Chrysler, said at the Reuters Autos Summit this week.

Even more than the two other American auto makers, Chrysler is seen as overly reliant on gas-hungry heavy trucks and sports utility vehicles, a problem compounded by the fact that unlike Ford or GM, Chrysler has largely failed to go global.

This leaves the company overly exposed to U.S. consumers when automakers are eyeing expanding markets like China, India and Eastern Europe for real, long-term sales growth.

"When I left in 1993, 10 percent of their (Chrysler's) volume was international," said Jerry York, an advisor to Tracinda Corp's $1 billion investment in Ford and a former chief financial officer at Chrysler. "It's still 10 percent."

"They don't have the diversification in the markets that GM and Ford have," he added.

Chrysler's options in a crisis may be limited as few automakers would be in a position to buy the company, especially if credit remains tight, some analysts said.

Other investors, such as private equity funds, may be reluctant to take a bet on a company that has already proven costly to its previous and current owners, they said.

"To be perfectly candid, I don't think there's a buyer for Chrysler right now," York said.

BUMPING ALONG THE BOTTOM

With the housing crisis in full swing -- depriving home owners of the once popular option of using their homes as ATMs -- plus rising unemployment, U.S. auto sales have fallen to 15-year lows.  Continued...