Chrysler Exits Chapter 11, Forms Chrysler Group, Finalizes Fiat Alliance
By Chris Haak
Hot on the heels of the US Supreme Court’s refusal to hear the Indiana pension funds’ objectionsto the sale of Chrysler, the company (at least the “good” parts of it) has exited Chapter 11 bankruptcy protection and formed a new company called Chrysler Group LLC. Chrysler Group LLC is owned 20% by Italy’s Fiat SpA, 55% by the UAW, 8% by the US government, and 2% by the Canadian government. Those numbers only add to 85%, but Fiat will get the remaining 15% if the loans granted by the US Treasury during Chrysler’s restructuring and bankruptcy are repaid.
Concurrent with the formation of Chrysler Group LLC (I already dislike having to type that extra word), Chrysler LLC Chairman and CEO Robert Nardelli left the company, as he previously indicated he would do. Nardelli sent a heartfelt thank-you/farewell/congratulations letter to all Chrysler employees (download the text of his letter here as a PDF). In his note, he also mentioned that he would be returning to Cerberus, so he may well pop up again elsewhere in the business world.
Fiat Group CEO Sergio Marchionne is now the CEO of Chrysler Group and will be responsible for day-to-day operations of the new company, and Chrysler’s chairman will be C. Robert Kidder, the former chairman and CEO of Borden Chemical Inc. and Duracell International Inc. Chrysler Group LLC’s board of directors will consist of nine members, including three appointed by Fiat, four appointed by the US government, one appointed by the Canadian government, and one by the UAW’s VEBA trust fund. New CEO Sergio Marchionne sent Chrysler Group LLC employees a welcome letter that struck an optimistic tone, based on the company’s now-competitive labor agreements, clean balance sheet, and slimmer dealer body. (Download the text of Marchionne’s letter here as a PDF).
Chrysler Group LLC begins operations immediately, and according to the company, will also restart production – which halted immediately upon the declaration of bankruptcy – as soon as possible, according to the company’s press release. Chrysler LLC previously had two Co-Presidents, Tom Lasorda (who had been Chrysler’s CEO prior to Cerberus’ acquisition) and Jim Press, who joined the company from Toyota. Lasorda retired earlier this year and is now working with Roger Penske on his Saturn deal. The company announced that Jim Press will remain with the company and will serve as Deputy CEO, reporting to Marchionne. Chrysler LLC’s former head of product development, Frank Klegon, has retired, as has Chrysler LLC’s former head of North America sales, service, and parts.
Instead, Marchionne has implemented an organizational structure similar to what he already has in place at Fiat, with individual brand executives responsible for the profit and loss of their brands. So there is now a President and CEO of Jeep, a President and CEO of Dodge, a President and CEO of Chrysler (the brand, not the company), and a President and CEO of Mopar. The company also has a new CFO, while the former CFO, Ron Kolka, will lead the liquidation of what is left of Chrysler LLC.
The combined Chrysler Group LLC-Fiat alliance becomes the world’s sixth-largest automaker based on 2008 sales volume, and takes a large step toward Sergio Marchionne’s goal of bulking up on scale in order to survive the global recession. He has previously said that an automaker needs 6 million units in annual sales in order to survive. While Fiat-Chrysler is now closer to that number, it still has a way to go. Fiat’s failed (non-cash) offer for GM’s German Opel subsidiary, had it been accepted, would have put it over the magic number, but it’s back to the drawing board.
Based on its enormous struggles, Chrysler’s bankruptcy was a painful but necessary step for the company to take. If the company can survive the next two years without really any new products aside from the next-generation Jeep Grand Cherokee and Chrysler 300 sedan, the new US-built Fiat offerings should help Chrysler shed its gas-guzzling, questionable quality image. (Though on the latter point – product quality – Fiat came in dead last in JD Power’s initial quality study in the UK). But Chrysler’s products – with a few exceptions such as the Ram, minivans, and Challenger – are not particularly well-regarded or well-received in the marketplace. Can a lineup that has trouble selling today continue to sell in adequate volume for the next two years to pay the bills? I certainly hope so, but it’s also nowhere near a certainty.
It will be interesting to see how well the alliance works for Fiat-Chrysler. Chrysler’s last alliance, with Daimler AG, nearly killed the company, but the Nissan-Renault alliance has been going strong for a while. I wish them luck.