Chrysler Corporation

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Chrysler Corporation

12000 Chrysler Drive
Highland Park, Michigan 48203
U.S.A.
(313) 956-5252

Public Company
Incorporated: June 6, 1925
Employees: 107,850
Sales: $22.5 billion
Market Value: $7.7 billion
Stock Index: New York London

With famous lines of passenger cars, numerous major manufacturing subsidiaries, and a variety of important interests in foreign countries, the Chrysler Corporation would appear to be a strong, viable company. But in the late 1970’s Chrysler, the 14th largest industrial firm in the United States, was fighting for its life. It took a massive injection of government and private capital, extremely careful management, and some brilliant marketing to restore the ailing giant. The company’s comeback is now legendary, but it would be premature to assume that Chrysler’s problems are all in the past.

The company was incorporated in 1925 by Walter Percy Chrysler, a former vice president of General Motors. Resigning from GM over policy differences, Chrysler went on to restore the Maxwell Motor Corporation to solvency; in the process he designed Maxwell’s Chrysler automobile. First exhibited in 1924, the car was an immediate success and before year’s end the company sold 32,000 cars at a profit of more than $4 million.

The enthusiasm with which the vehicle was met encouraged Walter Chrysler to design four additional models for the coming year: the 50, 60, 70, and Imperial 80. These model numbers referred to the maximum velocity that the cars could reach on a level stretch of road. Until that time, Ford’s Model T had enjoyed the reputation of the fastest car, achieving a modest 35 mph. Alarmed by Chrysler’s technological breakthrough, the Ford Motor Company closed its doors for nine months and emerged with a replacement for the Model T. However, by 1927 the Chrysler Corporation (as it had been called since 1925) had firmly established itself with a sale of 192,000 cars, becoming the fifth largest company in the industry.

Walter Chrysler realised that in order to exploit his firm’s manufacturing capacities to their fullest, he would have to build his own plants. Since he could not afford the estimated $75 million to achieve this, he approached the New York banking firm of Dillon Read and Company. Dillon Read had bought the Dodge Corporation of Detroit from the widows of the Dodge brothers and was happy to reach an agreement with the now highly regarded Walter Chrysler. In July 1928 Dodge became a division of the Chrysler Corporation; overnight, the size of the company increased fivefold.

But Walter Chrysler, carefully avoiding the dangers associated with rapid growth, discontinued his policy of manufacturing as many parts as possible for his cars. While he paid more for components than other car makers, he was able to maintain greater flexibility in models and designs. This proved to be extremely important in an age of rapid technological advance. Indeed, Walter Chrysler’s farsightedness helped the company to survive the 1930’s Depression far better than most in the industry, and his strategy of spending money on research, “no matter how gloomy the outlook,” may have been responsible for his firm’s sound financial standing until well into the 1940’s.

Along with the rest of Detroit’s motor industry, Chrysler converted to war production during World War II. The manufacture of its Chrysler, Dodge, and Plymouth cars was put on hold while the corporation specialized in defense hardware such as small arms ammunition and submarine nets. But chief among its war products were B-29 bomber engines and anti-aircraft guns and tanks. Chrysler’s wartime service earned it a special Army-Navy award for reliability and prompt delivery.

The corporation’s problems started in the immediate postwar period. The ambition and spirit which drove the company to constant innovation and experimentation in the early days had been lost. The auto market had exhausted fundamental engineering breakthroughs and American tastes had changed. It seemed that the public was more excited by the sleeker, less traditional, and sometimes less reliable models being produced by Chrysler’s rivals. In short, the car industry was becoming a “marketer’s game,” and Chrysler’s management wasn’t playing.

In 1950 L.L. Colbert, a lawyer hired by Walter Chrysler in 1929, became the corporation’s president. By this time, some major overhauling was necessary and Colbert hired the management consulting firm of McKinsey and Company. Three reforms were instituted: Chrysler developed international markets for its cars, its management was centralized, and the role of the engineering department was redefined.

Colbert’s reforms did little to revive the company’s flagging fortunes and two years later there was another change of management. Lynn Townsend, the new corporate head, proved to be more effective. He consolidated the Chrysler and Plymouth car divisions, closed some unproductive plants, and generally tightened operations; he also reduced the work force and installed an IBM computer system to replace 700 members of the clerical staff. Most importantly, he enhanced sales by improving the quality of the Chrysler automobile, introducing the best warranty the industry had yet seen and instituting a more aggressive marketing policy. In less than five years, Townsend had revitalized the corporation.

Success led to expansion: a space division was formed and Chrysler became the prime contractor for the Saturn booster rocket. By the end of the 1960’s Townsend’s international strategy yielded plants in 18 foreign countries. But before the decade was over, the domestic market was undergoing major changes. Inflation was taking its toll on U.S. auto manufacturers, imports of foreign vehicles had substantially increased, and the price of crude oil had risen drastically. Chrysler’s troubles were compounded by internal factors: it was more concerned with competing against Ford and General Motors than in adapting itself to the rapidly changing market; it did not produce enough of its popular compact cars to meet consumer demand; and it had an overstock of larger vehicles.

The corporation reported a $4 million loss in 1969 and was operating at only 68% of its capacity; the previous year it had earned profits of $122 million. Car prices were substantially reduced, but this did little to solve the underlying problems. John J. Riccardo, an accountant, succeeded to the presidency and immediately set about reducing expenses. Salaries, work force, and budget were all cut and the company experimented with the marketing of foreign-made cars.

Unfortunately, Chrysler seemed incapable of reading the public mood: it narrowed and shortened Dodge and Chrysler models to bring prices down, but sales also tumbled; it continued to make Imperials long after Cadillacs and Lincolns had demonstrated their superiority in the luxury market; and it greeted the 1973-74 Arab oil embargo with a large inventory of gas-guzzlers. 1974 losses totalled a massive $52 million, but the next year’s deficit was five times that amount.

The company experienced a brief respite in 1976 and 1977. Its trucks were in demand and foreign subsidiaries turned in good results, but domestic car sales remained a problem. Riccardo further consolidated North American operations and increased manufacturing capacity for compact cars. However, by the time Chrysler became a significant contender in that market, American car buyers were showing a distinct preference for the reliable and relatively inexpensive Japanese compacts. The days of United States manufacturing hegemony appeared to be over.

A loss of $205 million in 1978 led many industry-watchers to wonder if Chrysler’s roller-coaster finances could rebound from this latest big dip. The syndicate of banks (with Manufacturers Hanover Trust in the vanguard) which for years had been pouring money into Chrysler, panicked. Incredibly, many of the smaller banks had agreed to virtually unlimited lines of credit on the assumption that the company would never need to use them.

But complex and highly charged negotiations eventually saved Chrysler from bankruptcy. The federal government agreed to guarantee loans up to $1.5 billion provided Chrysler raised $2 billion on its own. However, politicians could not justify such a massive bail-out without changes in Chrysler’s management. Riccardo, who had diligently fought against heavy odds, had to go.

It was left to the charismatic Lee Iacocca to preside over Chrysler’s comeback. An ex-Ford man with a flair for marketing and public relations, Iacocca took Chrysler’s problems to the people, explaining that the company’s failure would mean the loss of hundreds of thousands of jobs and could seriously damage the economy of the State of Michigan. But despite popular mythology and the near-adulation of Iacocca in some quarters, Riccardo was largely responsible for forging the agreement that gave Chrysler a new lease of life.

Nevertheless, Iacocca’s skills as a communicator and as a super television salesman have been of crucial importance. Remarkably, Chrysler’s recovery has been solid enough to enable it to buy from Renault its 46% stake in the Detroit-based American Motors Corporation. Iacocca claims that this acquisition will enhance Chrysler’s competitiveness in the 1990’s and he believes that his company can substantially increase sales of the AMC Jeep. Even so, high expectations are tempered by doubts about the economy. In November 1987 Chrysler announced the temporary lay-off of workers at two plants to allow time for inventories to be reduced.

Principal Subsidiaries

Automotive Financial Serices, Inc.; Chrysler Overseas Capital Corp.; Chrysler Realty Corp.; Gulf stream Aerospace Corp.; Chrysler Financial Corp. The company also has subsidiaries in the following countries: Canada, Mexico, and the Netherlands Antilles.