ON CHRYSLER'S JOURNEY

TWISTS AND TURNS
Yesterday's post highlighted an op-ed that provides a different perspective on the current travails of the U.S. auto industry.  Today, a sobering article in the Wall Street Journal explores how one iconic U.S. auto company, Chrysler, came to this dramatic end of a very long road:

"The company filed for Chapter 11 bankruptcy protection on Thursday. The auto maker that emerges will likely be smaller, designing trucks and sport-utility vehicles and making cars developed by Fiat."
Chrysler's filing sounds a conclusive rattle in the long, painful decline of Detroit's Big Three auto makers. Like its age-old rivals General Motors Corp. and Ford Motor Co., Chrysler suffered from costly and inflexible union contracts, poor quality, bad management decisions and an economic downturn that put the brakes on consumer spending. In Chrysler's case, the seeds of its downfall, including the piling on of debts that proved to be overwhelming, were planted unknowingly in crises of the past."

There are some pretty dramatic moments in the story, and the piece needs to be read in it's entirety to capture their full import.  Here are some that stood out for me, starting with this one in 2006:

"To help ease the blow, Chrysler sought concessions from the big auto-workers union. Chrysler, like Ford and GM, was groaning under the weight of decades of labor contracts that provided generous health care for active workers plus hundreds of thousands of retirees and their dependents. In 2005, GM lost $11 billion and the following year Ford lost $10 billion. To help them, the United Auto Workers agreed to cuts in retiree health care."

"The union took a harder line with Chrysler. Despite the U.S. unit's losses, it argued, parent company DaimlerChrysler was still making money..."

"...Within weeks of the union rebuff, senior German executives began exploring the possibility of selling Chrysler. Mr. Zetsche acquiesced. About six months later, the buyer was named -- the secretive Cerberus, which had made billions of dollars with a blueprint of buying troubled companies, slashing costs and selling again quickly."

And then this one in late 2008:

"Inside Cerberus's Manhattan offices, the firm's top officials realized an auto-financing business was profitable only if it's connected with a healthy car company. "We had this stupid illusion that the finance company could have value on its own," said one person familiar with Cerberus's thinking. "We were wrong."

This is of course startling considering that Cereberus also owns substantial stakes in GMAC, the other major auto finance company.  As of today, the company is in the process of consolidating these finance businesses, as this other WSJ piece reports.
The Chrysler story has a lot of lessons to be learned and re-learned, for a whole host of constituents, and this piece is but a starting point to get a handle on it all.

* Image source.

Comments

[Alex Tolley]

Do we think Fiat has learned from Chryler's history? I suspect Chryler will drag down what is left of Fiat too.

[BRIAN K. SMITH]

THE CHALLENGER IS GREAT CAR NEED TO SEE MORE IN THE SHOWROOM PEOPLE TODAY LIKE SMOOTH,QUIET CARS THAT PERFORM DON'T SCRIMP ON THE NOISE REDUCTION CAN'T WAIT TO SEE THE HYBRIDS COME ON CHRYSLER ENGINEERS ANS EXECUTIVES GET FOCUSED AND KEEP CHRYSLER ON THE MAP LOOKING TO BUY SOON. Brian