Can Chrysler find another Iacocca?
Published Saturday May 2nd, 2009
"There have to be three near-miracles" for a partnership with Fiat SpA to succeed in rescuing Chrysler LLC, says Dennis DesRosiers, an auto consultant in Richmond Hill, Ont.
"First, Americans have to embrace small cars," he says. "They never have." Neither have they bought Italian small cars in any volume; nor have small cars been profitable for any auto company in North America that wasn't Japanese, says DesRosiers, a market research consultant for 24 years.
That kind of challenge is nothing new for a company born 84 years ago in Walter P. Chrysler's reorganization of the Maxwell Motor Co. The bankruptcy filing Thursday by the Auburn Hills, Mich.-based automaker is the company's fourth near-death experience since 1979. U.S. president Jimmy Carter's US$1.5 billion government loan guarantee that year helped Lee Iacocca avert failure and turn himself into a Detroit icon.
The maker of Dodge Grand Caravan minivans and Charger sedans was given an $8.08 billion lifeline Thursday by President Barack Obama and forced into a shotgun marriage with the Italian automaker. The revival Iacocca led was based on sales of the K-car, a small, fuel-efficient, inexpensive line of sedans. This time, Chrysler will have to rely on low-priced, gas-thrifty cars from the Fiat lineup including the Punto and Fiat 500.
Chrysler listed total assets of $39 billion and liabilities of $55 billion Thursday, making its bankruptcy the fifth largest in U.S. history. The automaker will idle of its plants today while seeking court approval of the Fiat partnership, a company lawyer said.
The success of a Chrysler marriage with Fiat isn't a given, said Rebecca Lindland, a senior auto analyst at IHS Global Insight in Lexington, Massachusetts.
"To say that this Fiat deal is going to solve everything is just naïve," Lindland said. "It's just not true."
For much of its history, Chrysler has been the scrappy No. 3 to General Motors Corp. and Ford Motor Co. The Plymouth Valiant, introduced in 1959, was an economical alternative to other midsized cars, while Chrysler burnished a reputation for engineering with the Hemi V-8 engine, in 1951, and 1960s muscle cars like the Charger. The Caravan in 1983 pioneered the minivan. Chrysler also blazed a trail with cash-back sales incentives in the 1970s.
General Motors, which celebrated its 100th year in 2008, is also reorganizing with the help of government financing. The Detroit-based automaker replaced chief executive officer Rick Wagoner with Fritz Henderson on Obama's orders in March.
Dealers whose livelihoods are staked on Chrysler's success say they hope Fiat's promise of fuel economy will keep the company alive this time around.
Fiat vehicles get the highest gas mileage in the world, which could give Chrysler a way to counter Japanese automakers, said Dale Early, who owns a dealership in the Houston suburb of Kingwood, Texas.
Fiat said it will put no cash into its Chrysler investment. Instead it's contributing small-car technology and designs so the American company can build and sell the subcompact 500, which won European Car of the Year in 2008, and the Panda, Punto and Grand Punto small cars.
None of Fiat's models could be sold immediately in the U.S. because they don't conform to federal safety and other regulations. The design changes may take one to two years. Fiat said it could start selling its vehicles through Chrysler dealers in 2011.
Chrysler has lurched from crisis to crisis - in the late 1970s, in the early 1990s, in 2000 and again today.
"We've been on the brink of elimination more than once, and we've been able to find a way through," said Early, the Texas dealer. "I expect for us to emerge from this, just like we did rise from the ashes so many times before."
After its founding in 1925, Chrysler became known for developing high-technology vehicles in the 1930s. Its brands included Imperial, DeSoto, Plymouth and Valiant before slimming down to today's lineup of Chrysler, Dodge and Jeep.
In 1974, the year of the first U.S. oil shock, when the company invested in a new lineup of full-sized cars. The gas guzzlers were losing out to Honda Motor Co.'s tiny Civic. Even billionaire Malcolm Forbes owned one.
In a Super Bowl commercial in 1975, Chrysler pitchman Joe Garagiola offered $200 cash back to anyone who bought a new Dodge Dart or Plymouth Duster.
"Buy a car, get a check," he said.
It was the opening salvo in the war of auto incentives. By 2003, automakers in the U.S. would spend more than $55 billion on incentives, exceeding their product-development budget, according to CNW Marketing Research Inc. in Bandon, Oregon.
By 1979 as fuel prices again surged following the Iranian revolution, the company was in crisis and averted bankruptcy only with $1.5 billion in government-guaranteed loans and Iacocca's personal TV pitches.
"If you can find a better car, buy it," Iacocca said in commercials appealing to American patriotism.
Jerry Greenwald, now managing partner of Greenbriar Equity Group LLC, was recruited as Chrysler controller in 1979 from Ford, based in Dearborn, Michigan, to help Iacocca.
"The company had been run by brilliant financial people who didn't appoint talented or experienced automotive experts," Greenwald said. "They built cars on speculation and then tried to make dealers buy from a bank of unsold vehicles."
The Fiat alliance won't be Chrysler's first. The U.S. automaker embarked in 1998 on a $36 billion marriage with Daimler AG, the Stuttgart, Germany-based maker of Mercedes-Benz luxury cars.
By the end of 2000 the Chrysler division of the merged company known as DaimlerChrysler AG cut 26,000 jobs and closed six factories. The unit lost 4.45 billion euros ($3.99 billion) in the first quarter of 2001, including restructuring charges. The shares, which peaked at 95.83 euros in April 1999, fell to 23.94 by March 2003.
Chrysler ceded the No. 3 slot in U.S. auto sales to Toyota Motor Corp. in 2006, and Daimler began looking to exit.
Investor Kirk Kerkorian bid $4.5 billion for the unit in 2007 -- his second unsuccessful attempt to take over the automaker. Then Cerberus Capital Management LP offered $7.4 billion in August 2007. The private equity firm installed Bob Nardelli as CEO just as the financial crisis was taking hold. He killed four of the company's models, including the Chrysler Crossfire and the PT Cruiser.
With yThursday's deal, Cerberus lost its investment and will write off a $1.5 billion loan while U.S. taxpayers take an 8 per cent stake in return for the $8.08 billion investment. The United Auto Workers retiree health-care fund will be the majority owner, with 55 per cent. Chrysler's secured lenders will become equity shareholders, alongside Fiat, after bankruptcy. Daimler surrendered its remaining stake.
AutoNation's Jackson said Thursday was a good day.
"We could have been talking about Chrysler going out of business and into liquidation," he said.
Dick Mullen, whose 82-year-old shop in Southold, New York, started selling DeSotos and Plymouths in 1932, loaned Chrysler $10,000 in 1980 and earned 11 per cent on the debentures that helped save the company then.
"We've been here three or four times, the same situation," said Mullen, 72. "We're going to hang on."
Mullen was the first Chrysler dealer to sell Jeeps after the company bought American Motors Corp. in 1987. He was among a handful of dealers invited to lunch at New York's Waldorf Astoria hotel on the first day on the job for Iacocca's successor, Robert Eaton, in 1993.
"It pains me to see my old company, which has meant so much to America, on the ropes," Iacocca, now 84, said Thursday in a statement. "But Chrysler has been in trouble before and we got through it."
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