April 30, 2009 - Chrysler, Detroit MI

Chrysler's Familiar Rocky Road

Looking to Automaker's Past, White House Hopes Formula for Rebirth Can Work Twice

Chrysler's Familiar Rocky Road

The last time Chrysler staggered up to death's door it was saved by a combination of the charismatic Lee A. Iacocca, taxpayer money and new brands that grabbed the attention of American motorists. By the mid-1980s, five years after receiving federal aid, Chrysler was profitable again, its minivan, K cars and convertible were popular, and there was a groundswell of support for an Iacocca presidential run.

This time, the Obama administration is hoping a similar combination of a charismatic executive, taxpayer money and new brands will once again rescue the ailing American carmaker -- even if it must pass through the purgatory of bankruptcy.

But the fact that the Obama administration has been forced to look to Italy's Fiat for an executive and design expertise to revive Chrysler is an indication of just how pale a shadow of its former self the 84-year-old U.S. carmaker has become.

"Chrysler's product line is not competitive, and it's going to take at least two years and billions of dollars before any Fiat cars could be sold in the U.S. And it's unlikely that those cars will be profitable," said Maryann N. Keller, an independent automobile industry analyst and author.

The Obama administration auto task force is betting that isn't the case, and that its rescue plan will put Chrysler back on the road to viability.

Founded in 1925 by Walter P. Chrysler, the company pioneered such engineering innovations as wheel rims and hydraulic brakes, oil filters and carburetor design. From 1936 to 1949 it was the second-biggest U.S. car company. Its memorable early models include the moderately priced Plymouth, introduced in the 1920s, and the luxurious Imperial, introduced in 1955. Later it promoted "muscle" cars with names like Challenger and Road Runner, which shook up the world of car racing, and in the 1960s it expanded into Europe.

But soaring gasoline prices and economic slowdowns in the 1970s drove Chrysler to the brink of bankruptcy. Consumers flocked to the company's compact Dodge Dart and Plymouth Valiant, but shunned the gas guzzlers that made up most of Chrysler's product line. Costs soared. By 1979, the company brought in Iacocca from Ford and negotiated over a 10-month period a $1.5 billion federal loan guarantee, which was soon repaid in full.

Building a New Image

Iacocca made Chrysler a symbol of U.S. manufacturing, and he became a symbol by standing up to the encroachment by Japanese products in the U.S. marketplace. The company ran a nationalistic ad campaign, urging people to buy American.

At first, the company relied on what it called K cars, a lackluster line that did well "because Iacocca was such a brilliant promoter," Keller said. Then, she added, in 1984 came "the vehicle that saved Chrysler" -- the minivan. Its design appealed to suburban families shuttling kids from place to place. In 1987, Chrysler bought American Motors, acquiring the Jeep brand that remains one of Chrysler's main assets.

Iacocca became a celebrity, and his autobiography sat on top of bestseller lists for more than a year. He dispensed political advice, urging a tougher stance on trade with Japan, a lower deficit and a gasoline tax to stabilize fuel prices. "I would go through the mail and it came from people all over the country," said Jodie Allen, then an Iacocca adviser and later a journalist. "And they were saying 'I've been through tough times, too, and I've gotten great inspiration from your book.' "

After the economic slump of 1991, the company rebounded and was very profitable. It rang up $3.7 billion in profit in 1994 and $3.5 billion in 1996, when Chrysler's market share hit its highest level since 1957.

That attracted the attention of Daimler-Benz, which acquired Chrysler in 1998 for an eye-popping $36 billion. The company talked about the synergy of an up-market German company with a mid-market American firm. Daimler boss Jurgen Schrempp described the DaimlerChrysler match as a "marriage made in heaven."

But the marriage was troubled from the beginning. In December 1998, senior executives traveled to Seville, Spain, for the newly formed company's first management retreat. The American executives -- far from their home in Auburn Hills -- found themselves outnumbered by the Germans. One night, the gathering turned into giant party. Germans and Americans toasted their new company. One executive began playing the piano at the bar and Schrempp led a loud, rowdy chorus in song.

Just as cultural barriers were crumbling, Schrempp picked up his assistant and threw her over his shoulder. Grabbing a bottle of champagne, he shouted "See you later, boys" and exited, several Chrysler and Daimler executives who were present remember. To some, it was a clear message: Schrempp did what he wanted.

The illusion of "a merger of equals" began to dissolve after that trip to Spain. Schrempp took control of DaimlerChrysler, and Chrysler lost its independence. Money was poured into the luxury brand Mercedes, while Chrysler's quality deteriorated. The U.S. automaker's research and design team was moved to Stuttgart, Germany. A joke spread around Detroit: How do you pronounce DaimlerChrysler? Daimler; the Chrysler is silent.

"Daimler left Chrysler a hollow company," Keller said.

Ultimately, the transnational marriage turned into a disaster for both companies. Daimler, eager to avoid paying for Chrysler's pension obligations, ended up essentially paying to sell Chrysler nine years later. By that time, Chrysler had slumped to fourth place in the United States, its only market.

The Buyout Bet

The Chicago-based private-equity firm Cerberus Capital Management thought it could turn the automaker around. In May 2007 Cerberus agreed to acquire 80.1 percent of Chrysler for about $7.8 billion. The deal included the automaker's financing arm, Chrysler Financial. Riding the boom in the private-equity buyout business, Cerberus wooed investments from state pension plans, charitable endowments and insurance companies.

"Private investment is no magic elixir, but in certain cases like Chrysler, we believe it offers simply the best hope for restoring competitiveness to sectors of the U.S. economy that need it most," Cerberus chairman and former Treasury secretary John W. Snow said in a July 2007 speech.

But Cerberus lost its bet. Its strategy of partnering with foreign companies for new car designs didn't work out, and in less than a year, high gasoline prices and a credit crisis put not only Chrysler but the entire automobile industry in peril. Chrysler, which employs about half the workers it did in 1978, is preparing to shrink again. Its future as an independent company is in doubt; it hopes a partnership with Fiat will provide new energy and technology. Under the new rescue plan, Cerberus, now sole owner, will lose its entire investment.

This year's auto show in Detroit seemed to reflect just how far Chrysler has fallen. The company had once been known for is Hollywood-like theatrics at the annual event. One year it created a fake snowstorm to launch its Aspen sport-utility vehicle. Another year, the company drove its new Jeep up the steps of the Cobo Hall convention center and crashed it through a glass window for a grand entrance. As late as 2008, a group of rugged cowboys and the revamped Dodge Ram herded 120 cattle through the streets of Detroit.

This year, however, the curtain came down before the show began. Chrysler executives no longer got free tickets to the annual black-tie charity gala. The firm canceled its notorious news media party at a local firehouse. And there was no big spectacle to unveil new cars.

Original Story - Washington Post