The Long Road Down – Part 4

You can read Part 3 HERE

By Jerry Weber

08.28.2007

Walter P. Chrysler (1875-1940) would never live up to the fame of his contemporary Henry Ford.

Chrysler, was a Midwesterner, whose family name, the German “Kreissler”, was anglicized to Chrysler. Walter by nature understood anything mechanical. He rose through the railroad industry to become president of the American Locomotive Co in Pittsburgh; from there he switched to cars and successfully reinvigorated the Buick division for GM before going on to run both the Willys & Maxwell automobile companies.

Walter took a page from GM in that he bought an existing car company. In 1924 he secured the necessary investors and bought Maxwell, and introduced his Chrysler automobile (a Maxwell with Chrysler’s name). He surrounded himself with good engineers like Carl Breer, Owen Skelton, & Fred Zeder. Unlike Henry Ford, he was always open to new ideas.

Chrysler either invented, or, was the first to use on popular-priced cars, things like: high-compression engines, hydraulic brakes, steel bodies, etc. He knew that America was awash with numerous auto makers in the Twenties and he had to break through with better, more innovative products to succeed. He bought the Dodge Brothers auto company and introduced Plymouth ( a low priced car) in 1928 ; In 1929 he added DeSoto, and Imperial. So Chrysler went through the Depression with a full line of cars to match GM & Ford.

However, like any other automobile company, mistakes were occasionally made. In 1934 the Company introduced the Chrysler Airflow as an art deco, modern look into the future. It was aerodynamic, all-steel-bodied, and different from anything else in America. So, of course it failed. It was too far-out for most Americans and it failed. However, this was not fatal, and Chrysler, unlike so many auto companies, actually made it through the Thirties in relatively good shape due to the popularity and superiority of its other products.


Walter Chrysler died in 1940 before America’s entry into WW II and his company went on to make many of the armaments America went to war with against the Axis Powers. To name just some: The Sherman & Pershing tanks, The ¾ ton truck & ambulance, B-29 bomber engines, and even diffusers for the Manhattan (atomic bomb) project. It wasn’t until after WW II that financial trouble came to Chrysler.

The post-war era started out fine for Chrysler, which was now under the helm of K.T. Keller, who had left GM in 1926 and then served as President under Chrysler in the late 1930’s. You must remember that all cars sold well to a product-starved America after WWII. Auto companies just took their last pre-war models and re-issued them for the 1946-47 model years. However, everyone was readying something new for the new decade to come.

Here, Chrysler was caught flat-footed against Ford & GM. GM had their new torpedo low-slung look with some fighter plane fins courtesy of Harley Earl, Ford had a low-slung rounded body for their new 1948 products. Chrysler, under Chairman Keller, stayed conservative in the styling of their cars. The bodies were high and square, the flathead six cylinder engines underpowered and the fluid drive transmission was, well, slow. If you were a customer that wanted a slow, smooth car, you could buy a six-cylinder Chrysler Windsor with fluid drive (semi-automatic transmission). A GM eight-cylinder hydramatic (fully automatic) or a Ford V8 could (and did!) cream it. As a sage said, Chryslers of this period were to take people to the races, not do the racing. Chrysler, under K.T. Keller, was convinced that their approach to the post-war market was destined for success, and that their cars would find favor with the public soon enough. The buying public disagreed with Keller.

This downturn was the first of many up-and-down roller coaster rides Chrysler suffered through in the post-war era. Chrysler was down in 1954, back up in 1957 with brilliant exterior design, down in 1960, up again by 1965, and so on. Heavy losses and restructuring were usually followed with some success only to have a downturn happen again. Chrysler had quality problems in the late fifties to compound their design ups and downs. Going into the Sixties, Chrysler had to cut DeSoto (1960), as sales didn’t justify another line. The mid-60’s were reasonably good for Chrysler as their cars began to have better quality and style across the board (it was in this period that Chrysler started the five-year 50,000 mile powertrain warranty). Chrysler’s torqueflight automatic transmission became known as the best automatic of the period.


As was the case with the other domestic automakers, the 1970’s were not kind to Chrysler. In fact, they had it worse than Ford and GM, ending the decade nearly bankrupt. The EPA was mandating lower emissions during this period and Chrysler’s engine management systems, intended to help the company meet the new emissions requirements, misfired and performed poorly. Further, Chrysler had the same heavy load of large V8’s and gas-drinkers that their competitors had. The public shunned Chrysler and to make matters worse, the old quality issues were back. It looked bleak for them by the late Seventies. In fact, to hide the lack of sales, Chrysler would build out models and store them all over Detroit without any orders (this was the notorious sales bank). After the lots were overflowing, they would attempt to fire-sale them to the dealers in packages (buy 6 and get a special deal on all of them). Chrysler resale values plummeted, a problem that would resurface again later, as would the “sales bank”.

Along comes Lee Iacocca, the spurned, scorned and fired former President of Ford, to the rescue in 1979. Iacocca had a large contingent of loyal executives who followed him to Chrysler from Ford. As Iacocca would write, if he had known just how bad a shape Chrysler was in, he might have stayed home. However, once on board, he was determined to turn a virtually bankrupt enterprise around.

With an unprecedented $1.5 billion USD in loan guarantees from the US government, give-backs from the unions, and Iococca’s instinct for putting the right bets on strategic products, Chrysler got new life.

First, the K Car showed up in 1981 – a square, roomy, front-wheel-drive compact that became the basis for much of Chrysler’s whole line in the 80’s. Taking a page from what he knew, Iacocca, who at Ford made Mustangs from Falcons and Mark III Lincolns from Thunderbirds, had Chrysler make just about every type of car off the basic K car you could imagine. He had the basic Plymouth Reliants and Dodge Aries stretched to become Chrysler Lebarons and New Yorkers, and in the mid-80’s, stretched even more to conjure up a mini-limousine. The cars actually were fairly reliable and comfortable, if not overly stylish.

But the zenith of all of these efforts was to take this platform and invent in 1984 the minivan, an entirely new type of vehicle. It has been said correctly that Iacocca didn’t invent the minivan as the Chrysler design people had it under development when he came to Chrysler. However, the new CEO saw the potential enormity of this vehicle, and pushed it to production as quickly as he could.

In other management directives, Iacocca eliminated the dreaded “sales bank” of unordered cars. His minions scoured through the Chrysler operations and forced efficiencies that didn’t exist before in a loosely-run Chrysler. He bought AMC in 1987, just to get Jeep, really, as he had no SUV-type vehicle to market. All of these decisions gave Chrysler a new start in the 1980’s.

In the early Nineties, Iacocca was being prodded to turn over Chrysler to a new CEO. He still had enormous clout with the board and for whatever reasons did not select any of his underlings at Chrysler. It was Iacocca who allowed the selection to go to an outsider from GM, Bob Eaton. This caused bad blood within Chrysler as people like Bob Lutz and others bolted for other companies. Worse to come, after retiring, Iococca linked up with Kirk Kerkorian, the famous corporate raider, and attempted to take control of Chrysler through a hostile takeover.

When this failed, it was Bob Eaton, who, fearing more hostile coups, began negotiations with Jurgen Schrempf, the CEO of Daimler Benz. This came at a time when the remaining car companies were all looking for strategic alignments as many auto industry analysts said there would only be five or six major manufacturers in the world in the 21st century. Everyone wanted to make certain they were big enough to survive the wave of consolidation in the industry.

So Daimler bought Chrysler for 36 billion dollars in 1998. This became a bad marriage where everyone lost, or, at least thought they did. Eaton was not an equal with Schrempf as it was first proclaimed when the deal was done, and soon left the new company. And Chrysler was hardly the equal of the German part of the alliance, either, which had also been publicly declared when the deal was struck. Iacocca and much of the press lamented the “takeover” by a foreign car company. And the Daimler execs anguished over the fact, that they, as the builder of prestige cars, were now involved with a mediocre mass-market car company. They believed to transfer Mercedes technology to Chrysler would diminish their own iconic brand. The chemistry went bad on both sides soon after the champagne was popped in 1998. An exodus of Chrysler engineers and designers occurred and the reputation that Chrysler had for being the small, nimble company that could bring out cutting-edge new products in a short time frame was severely diminished. Worse, the old up-and-down business cycles Chrysler had suffered through for many decades returned in the early 2000’s with a vengeance.

Things went down after the takeover, went back up when Dieter Zetsche came from Germany to give direction to Chrysler, and went back down in the mid 2000’s when Zetsche was pushed back to Germany to run a now-struggling Mercedes. This after Jurgen Schrempf, CEO of DaimlerChrysler lost his job over the negative repercussions of the merger/acquisition and was forced out for his corporate sins.


Zetsche appointed Tom LaSorda to operate Chrysler while he attempted to right Mercedes. LaSorda immediately got hit with a lulu of a product/marketplace mismatch. Like the other domestic automakers, Chrysler had too many trucks and SUVs for an economy that wanted more efficient products. Back came the reviled “sales bank” as product was parked all over Detroit, and losses were soon to follow. Worse, Chrysler, after a hit with the new 300 sedan, began firing duds as many of their new cars were DOA in the marketplace. The new 2007 Chrysler Sebring was a prime example of the mistakes Chrysler made in their car lines after the wonderful 300. It looked like a mish-mash of different cars; every enthusiast magazine review said it didn’t measure up to the competition and excoriated the car in different ways, and a lot of Sebring production headed straight to rental fleet limbo. The ones sold through the retail dealers only went over the curb with the help of hefty rebates.By 2007, the Germans had enough of the roller coaster. While publicly saying they would once again “fix” Chrysler just as they had addressed their own quality problems back in Stuttgart, they really were looking for some way out. Cerberus Capital Management, L.P. was the way they would escape. To give you some idea of what dumping Chrysler meant to the investors, the moment the mention of selling Chrysler became public, the Daimler stock skyrocketed. In other words, if the 36 billion dollars were to be left behind, but Mercedes escapes the union and retreats back to their position before the merger, it would all be worth it in the eyes of the market. Thus in August of 2007, Mercedes relinquished control and gave up an 80.1% interest in Chrysler (See story HERE). In fact, they more or less paid Cerberus to tow Chrysler away.

The new Chrysler starts again with a new CEO. Surprisingly, Cerberus goes to auto industry outsider Bob Nardelli, the ex-CEO of Home Depot to right the ship. There is little to go on so far with only a couple of weeks of new management. However, due to the fact that Cerberus is a capital management company and not an auto company, all bets are off as to what could happen.
Think about the fact that both Ford and GM have sold and mortgaged everything they previously owned to keep their core car business afloat. Both are reluctant to cut loose anything relating to domestic cars and trucks, because they view the car business as reason for their existence. Cerberus, on the other hand, has no such affinity to the car business, or any other business, for that matter. Chrysler will either produce, or some parts or all of it will be gone. This resolution will happen long before the last bit of money from Cerberus is poured into the enterprise. It’s not that a holding company is evil or bears malice; it’s that their commitment is to conserve and/or increase capital. If Chrysler starts contributing to this Cerberus goal, they may have a long-term future.

Neither the Ford family or the GM execs have other investments to turn to if what they are doing turns out badly. Thus, I believe both of these old companies will fight to the end to maintain themselves as intact car companies.

Cerbrus is wired differently, and will protect its capital if a real downturn or reverse occurs with Chrysler. Chrysler is an asset that needs to produce income, pure and simple. Just because Chrysler makes cars and trucks means nothing to Cerberus; there is no romance or special meaning to what Chrysler does as far as Cerberus is concerned. And despite the statements he’s made since he got his new job, about how much he really, really loves cars, you have to assume that Bob Nardelli feels the same way – to him, Chrysler is a problem that needs to be solved in a cold, clinical way without a lot of extra emotion attached to this process. Obviously, this was a major part of his appeal to Cerberus.

I hope it goes well for Chrysler. But if I had to choose who will not make it as an independent car company in the future, I would have to pick Chrysler. I don’t think Mercedes would have cut Chrysler loose if they had the remotest hope for a long-term and permanent recovery. Remember, they had already invested the $36 billion. Turning Chrysler around and justifying this huge amount of cash invested would have been in their best interest. Yet, after looking at all options and what they thought the future would hold, they walked, and that scares me for the future of Chrysler.

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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5 Comments

  1. I noted you have Imperial listed as a separate brand. Good on you as many people incorrectly refer to the cars as Chrysler Imperials, which is no more correct than saying Chrysler Dodges or Chrysler DeSotos.

  2. Chrysler lifted the K-car design from their Simca-Talbot connection in France. Even though they jettisoned the ownership they had in the company, they expanded on the design and got the K-Car.

  3. Chryslere is doomed as a stand-along company. Cerberus will cut everything they can, reduce manufacturing costs, pretty up the balance sheet, and unload Chrysler to a Korean, Chinese, or Indian company. Who knows, maybe even a Russian company will buy them.

  4. Cerberus is exactly the kind of owner Chrysler needs and Nardelli is probably the kind of CEO they need, too. “Car guys” got them into the deep hole they’re in now so what makes you think their management is going to get them out of the deep hole? Toughness is what’s needed at Chrysler, whether it’s toughness internally, being tough with the UAW, tough with suppliers, etc. Cerberus is a no-nonsense kind of organization and that could be precisely what’s needed in Auburn Hills.

  5. I think Nardelli will be a disaster for Chrysler, just like he was at Home Depot. Cerberus? They don’t have a lot of their own money in play here, so they’ll do all right no matter what happens. The employees of Chrysler? Hosed, completely hosed. The buyers of Chrysler Corp. cars and trucks? Hard to say, they may not own a red-headed stepchild if someone else absorbs Chrysler as part of their auto empire.

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