Chrysler Corporation

views updated

Chrysler Corporation

12000 Chrysler Drive
Highland Park, Michigan 48288-0001
U.S.A.
(313) 956-5741
Fax: (313) 956-1462

Public Company
Incorporated: 1925
Employees: 128,000
Sales: $43.6 billion
Stock Exchanges: New York London
SICs: 3711 Motor Vehicles and Car Bodies; 3714 Motor
Vehicle Parts and Accessories; 6141 Personal Credit
Institutions; 5511 New and Used Car Dealers; 6311 Life
Insurance; 7510 Automotive Rentals, No Drivers

With famous lines of passenger cars, numerous major manufacturing subsidiaries, and a variety of important interests in foreign countries, the Chrysler Corporation is a strong, viable company, a formidable force in the international automobile market. In the late 1970s and throughout the 1980s, however, Chrysler 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, a resurgence that was not completed until the mid-1990s.

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 realized 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.

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 Great 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 1940s.

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 1960s, 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 percent 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, and 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 rollercoaster 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. Despite popular mythology and the near-adulation of Iacocca in some quarters, many observers suggested that Riccardo was largely responsible for forging the agreement that gave Chrysler a new lease on life.

Nevertheless, Iacocca’s skills as a superb television salesman were of crucial importance. Under his stewardship, Chrysler battled back, and the road to recovery was a difficult one, demanding the closure of several plants and the reduction of the company’s work force. In late 1987, Chrysler announced the temporary lay-off of employees at two assembly plants, then in 1988 closed an assembly plant in Wisconsin. Two additional plants were closed the following year, coinciding with a company-wide restructuring that cost Chrysler $577 million and left it with $359 million in net earnings for the year, significantly lower than the $1.05 billion recorded the year before. Once restructured, Chrysler scrapped its plans to diversify and divested the Gulfstream Aerospace unit it had purchased five years earlier, selling to a New York investment firm for $825 million in early 1990. Two other units in the company’s Chrysler Technologies subsidiary—Electrospace Systems and Airborne Systems—were slated for divestiture as well, which underscored Iacocca’s intent to create a leaner, more sharply focused company.

Reorganized as such, Chrysler entered the 1990s braced for a full recovery, but the economy did not cooperate. The decline in automotive sales during the fourth quarter of 1989—the company’s first fourth quarter decline since 1982—portended a more crippling slump to come, as an economic recession gripped businesses of all types, both domestically and abroad. Net income in 1990 slipped to $68 million, then plunged to a $795 million loss the following year, $411 million of which was attributable to losses incurred by the company’s automotive operations. The precipitous drop in earnings for 1991 was the latest in a nearly decade-long series of declines that saw Chrysler’s earnings fall each year from the $2.3 billion generated in 1984 to 1991’s disappointing loss. Mired in an economic downturn, Chrysler appeared destined for more of the same, rather than headed toward recovery as Iacocca had hoped, but part of the reason for 1991’s losses also led to the company’s first step toward genuine recovery.

Partly to blame for the $795 million loss in 1991 were the high pre-production and introduction costs associated with Chrysler’s new Jeep Grand Cherokee and increased production costs at the company’s St. Louis minivan plant. These two types of vehicles—minivans and sports-utility vehicles—represented the key to Chrysler’s recovery. The popularity of these vehicles, coupled with significant price advantages over Japanese models, fueled Chrysler’s resurgence. In 1992, when Chrysler’s rival U.S. manufacturer, Ford, registered a $7.38 billion loss, Chrysler turned its $795 million loss the year before into a $723 million gain. It was a signal achievement, accomplished in Iacocca’s last year as chief executive officer, but still the debilitative economic climate clouded the company’s future, tempering hopes that the company could expect further earnings growth.

Aside from the stifling economic conditions, there were challenges unique to Chrysler that needed addressing before the company’s management could be optimistic. In the first quarter of 1993, Chrysler recorded a $4.4 billion charge for retiree health benefits, which led to a $2.5 billion loss for the year, a staggering financial blow but one irrespective of the company’s ability to successfully sell automotive vehicles. That ability was demonstrated in the first quarter of 1994, when Chrysler posted $938 million in profits, the most recorded in the company’s history and the greatest amount since the $801 million recorded in the second quarter of 1984.

Driven by the widespread demand for sports-utility vehicles and the waning prowess of Japanese car manufacturers, who were hobbled by the dollar’s strength against the yen, Chrysler entered the mid-1990s in a decidedly positive direction. As it charted its future, expectations for a recovery that had taken nearly a decade to realize were nearly complete, buoying hopes for a profitable conclusion to the 1990s and a strengthened position for the twenty-first century.

Principal Subsidiaries

Automotive Financial Services, Inc.; Acuflight, Inc. (67%); American Motors Pan American Corp.; Beaver Dam Products Corp.; Chrysler Corporation Fund; Chrysler International Corp.; Chrysler Pentastar Aviation, Inc.; Chrysler Technologies Corp.; Chrysler Transport, Inc.; Dealer Capital, Inc.; Jeep International Corp.; Chrysler Foreign Sales Corp.; AMC de Venezuela, CA; American Motors Overseas Corp.; Chrysler Canada Ltd.; Chrysler International SA; Chrysler Motors de Venezuela, SA; Chrysler Overseas Trading Co. Ltd.; Jeep Africa, Ltd. (51%); Jeep Australia, Pty. Ltd.; Jeep of Canada Ltd.; Jeep Japan, Ltd.; Chrysler de Mexico, SA (99.9%).