Who Put the "Crisis" In "Chrysler"? (Part 1 of 2)

The Chrysler Corporation is an 84 year-old with Bipolar Disorder. There is no better way to describe the company.

Their history reads like a giant roller-coaster ride of manically high highs and depressively low lows. In the last 30 years alone, Chrysler has been at death's door 3 separate times (1979-81, 1990-92, 2007-present), and taken US Government bailout money twice (in 1980 and 2008/9).

They were on the ropes in the early 1960s because they downsized their cars when everyone wanted them bigger and more powerful; the early '50s because they'd restyled the entire line way too conservatively for the first "Age of American Excess"; the mid-'30s because they'd practically bet the farm on odd-looking aerodynamic "Airflow" cars that were too far ahead of their time for people's tastes; and were founded by Walter P. Chrysler in the midst of the collapse of Maxwell-Chalmers in the mid-1920s.

But their highs have been incredible. After being saddled for half a decade with stodgy designs, Chrysler debuted new "Forward Look" cars in 1955 and '57 that sent GM and Ford scrambling to compete. Chrysler's longer, lower, wider designs, advanced engineering, and pioneering features pushed Plymouth, Dodge, DeSoto, Chrysler, and Imperial sales through the long, sweeping roof and set trends the industry would follow for years.

The late '60s and early '70s were kind to Chrysler, as well. Their big and midsize cars got slick "fuselage" styling. Their muscle cars were hot and there were plenty of them (Duster 340, Barracuda, GTX, Road Runner, Superbird, Challenger, Charger, Charger Daytona, Coronet Super Bee, and Sport Fury GT). Their all-new trucks and vans were winning people over. And their compact Darts and Valiants were selling out to the bare walls.

With Lee Iaccoca at the helm in the '80s, Chrysler climbed out of the grave by introducing the popular, economical K-Cars, the reintroding the convertible, and inventing the minivan. Chrysler came back quickly enough in the '80s to repay their government bailout loans ahead of schedule. They were doing so well, in fact, they went on to purchase American Motors, the fourth volume American vehicle manufacturer, in 1987, and picked up AMC's hugely profitable Jeep division for $1.1 billion in the process.

And as recently as 1998, the smallest of the Detroit Three was the most profitable among them. Chrysler had been totally turned around from its early '90s slump by offering swoopy "cab-forward" sedans (e.g., Dodge Intrepid, Chrysler Cirrus, Plymouth Neon), "rule-changing" Ram pickups, minivans for which they'd "thought of everything", and wild concept cars like the Viper and Prowler that were brought to production largely unchanged from their show car forebears.

So, what happened this time? Why is Chrysler once again swirling the drain, taking bailout money, and producing lousy, unimaginative products? Hadn't they learned their many lessons from the past?They probably had, actually.


The year (i.e., 1998) Chrysler registered record profits from its onslaught of attractive new models, it was bought out by Daimler-Benz (owners of Mercedes-Benz and Freightliner) for a cool $36 billion. The merged pair was called DaimlerChrysler. Robert Eaton, then head of Chrysler and one of the proponents of the marriage, declared it to the press as a "merger of equals". Industry people were skeptical, though, seeing little opportunity for cost-saving manufacturing synergies between the two car companies. Their skepticism turned out to be well-founded.

In as little as one year, the management responsible for Chrysler's '90s ascent (Robert Eaton, Robert Lutz, Thomas Stallkamp, and others) were forced out as the German arm of the business flexed its muscles. Soon, jokes like "Q: How do you pronounce 'DaimlerChrysler'? A: 'Daimler'. The 'Chrysler' is silent" about the so-called "merger of equals" began to circulate.

As former Daimler execs began to fill key roles at Chrysler, they promptly proceeded to botch new product introductions. Demand for the 2001 PT Cruiser was vastly misjudged, and Chrysler lost thousands of sales because the hot new hatchbacks were in short of supply for too long at dealers. Conversely, the new-for-2001 minivans came out too early in the year and had to compete with a glut of heavily-discounted prior-generation 2000 models on dealer lots.

The new executive team also confused their marketing strategies for Chrysler's four brands (i.e., Chrysler, Dodge, Jeep, and Plymouth). First, their plan was to keep the Dodge brand as the company's mass-market Chevrolet and Toyota rival, and to move Chrysler upscale to compete with the likes of Acura, Infiniti, and Lexus. But when they decided to cancel the Plymouth brand in 2001, they left Chrysler-Plymouth dealers no low-cost models to sell. So management capitulated to dealer requests and offered stripped-out Chrysler models to replace the lost sales volume from Plymouth's exit. This meant that the Chrysler division's brand image was diluted by offering vehicles that competed for the same customers that Dodge was supposed to attract.

And then came the cost-cutting, layoffs, and plant closings, all of which were directed exclusively at the American side of the business. Updates to Chrysler's once-excellent line of cars, trucks, minivans, and SUVs were delayed or canceled altogether as the foreign and domestic competition surpassed Chrysler's vehicles in quality, performance, design, and refinement. What new model introductions there were continued to be mishandled (2002 Jeep Liberty, 2003 Chrysler Pacifica) and the vehicles themselves were being made out of cheaper components to save money. All the while, the press were wondering when DaimlerChrysler would get around to sharing Mercedes's premium components with Chrysler's vehicles.

That didn't happen until 2003, as Chrysler's more expensive vehicles began to incorporate odds and ends from discontinued Mercedes-Benzes. For example, the 2003 Pacifica used Mercedes-Benz power seat controls. The 2004 Crossfire used the interior and chassis of the old Mercedes-Benz SLK, just as Mercedes introduced an all-new SLK. And the 2005 Chrysler 300 used the previous generation Mercedes E-Class rear suspension. While these parts were fine in and of themselves, they were obsolete castoffs, not the cutting-edge technology the Chrysler side needed to get back to respectability amid the continually advancing competition.

There was an image problem, too. The Chryslers that used Benz's old tech failed to get credit for being "all-American" to buyers who cared about things like that. And buyers who didn't care so much were turned off that the German-engineered bits they incorporated were hand-me-downs.

Taken together, Daimler's actions meant that customers looked elswhere for a new car. Sales, market share, and profitability tumbled. This triggered a round of even deeper budget cuts, and Chrysler's vehicles fell still further behind the competition. Before long, DaimlerChrysler was outsourcing much of Chrysler's engine design to Mitsubishi and Hyundai, and entire platform engineering for their compact and midsize cars to Mitsubishi, as well. When the resulting vehicles - the Caliber, Compass, Patriot, Avenger, and Sebring - were released, they were so poorly designed, equipped, and made that they did worse on the market than their mediocre, long-in-the-tooth predecessors had done just the year before.

By the time Daimler decided to sell Chrysler in 2007, the American arm of the company was deemed to be technically worthless, as its debts had exceeded its asset values. It had now become clear that Daimler's plan in 1998 wasn't to create a "merger of equals", but to get its hands on Chrysler's pile of money and use Chrysler's sales volumes to obtain vehicle components more cheaply. But, due to mismanagment, the plan backfired badly for Daimler. When Chrysler's sinking fortunes began to threaten the German arm's financial health, the directors decided to sell what was left of the American operation. Cerberus Capital Management, a private equity firm, scooped up the beleaguered automaker for a paltry $7.4 billion in 2007, and Daimler ate the $28.6 billion loss in investment.

Cerberus re-branded the company "The New Chrysler" at the time of the takeover, and instantly got in over its head. Sales and market share continued eroding. The company's biggest money-makers, their trucks and SUVs, couldn't be given away when fuel prices skyrocketed to $4.50/gallon. And Chrysler had no adequate entries in the compact or subcompact car segments, just as demand for vehicles in those segments shot off the charts. Cerberus's only solution to Chrysler's woes was to slash costs - and employee headcount - to the bone. Morale tumbled, and the company began to experience "brain drain", as much of their design, engineering, and managerial talent bailed, moving on to greener pastures at competing companies.

The New Chrysler desperately cast out for new alliances, lurching from Nissan to Hyundai/Kia to VW, and even to GM in order that it might save money on vehicle development costs by going in halvsies with those companies. And in the meantime, their lacklustre DaimlerChrysler-era product line soldiered on, underdeveloped, inadequately designed and engineered, and aging, with precious little in the way of development funds to fix their shortcomings.

But once the financial meltdown in September 2008 hit, all bets were off. Cerberus, a private equity group first and foremost was suddenly found to be taking a bath in its own blood. Most automakers saw their sales fall 25-35% instantly. Chrysler's fell 50%. It wasn't long before Cerberus was forced to the bargaining table in Washington, DC with hats in hand, begging for money until a buyer could be found for the basket case of a company that Chrysler had become.

So, for the second time, Chrysler received bailout funds from the Federal Government, beginning in late 2008, and continuing through June 2009. But the Obama Administration, recognizing the far-gone state of Chrysler, awarded the funds on the condition that they would submit to a takeover by the Fiat Auto Group and be run by its CEO, Sergio Marchionne. Failing that, the only other option was to go out of business altogether, liquidate the company's assets to pay of its prodigious debt, and put tens of thousands of people out of work.

The deal with Fiat did go through. On June 10, 2009, Chrysler emerged from the Chapter 11 Bankruptcy process, after a blazing 42 days in court. However, the "quick rinse" process involved awarding Chrysler to its third set of owners in two years. The United Auto Workers's Voluntary Employee Benefits Association (VEBA) took a 55% stake in the company, Fiat snapped up 20%, with an option to increase its stake to 35%, and the American and Canadian governments took the remaining 25%.

What happens next is up to CEO Sergio Marchionne and his team. To his credit, Marchionne was largely responsible for bringing Fiat AG back from the brink they'd face in 2004. But with sales having fallen so drastically, market share that's plummeted from 15% to 8%, and a mostly empty product pipeline, he has his work cut out for him.

Marchionne has moved fast, though. Since June, sweeping changes have been made to Chrysler's management structure. A few new products have been rushed into the pipeline, as well, filling some of the empty space left by Cerberus's drastic cuts. Vehicles like the 2010 Dodge Ram Heavy-Duty (just announced as Motor Trend's 2010 Truck of the Year), 2011 Jeep Grand Cherokee, and 2011 Chrysler 300 look to be massive steps in the right direction. And the management team just released its "5-Year Plan" to the public in a marathon 8-hour press conference on November 4. So they're hard at work.

But it begs the question: Will the new treatments administered by the Italian therapists be enough? Will Chrysler survive? Is it headed toward recovery, with its bipolar tendencies relegated to history? Can it grow and thrive in a steady, stable, and profitable manner?

Tune in soon for the second part of this series, "Taking the 'Crisis' Out of 'Chrysler'", to find out.