2. A Quick Brief
Chrysler's future may be uncertain, but its past is full of notable moments
Since Chrysler’s start in the early 1900s, they have held a substantial amount of
respect and leverage within the automobile industry.
After a long journey in the automotive industry passing by highlights of failure
and others of success they encountered a tricky financial situation
Chrysler fighting for survival and got tangled in bad strategies and abrupt
changes in management strategic decisions and other external factors.
There is much to the story, starting from their merger with Dailmer-Benz.
1934: The company introduces the Airflow,
production automobile. Despite praise for its
bold design, it is a commercial flop.
1938-41: Chrysler enjoys four straight years as
the world's No. 2 automaker, behind General
1940: Walter Chrysler dies.
1942-45: With auto production shut down for
World War II, Chrysler plants produce Sherman
tanks and other military vehicles.
1950s: Chrysler introduces a host of new
features to its cars, including the "hemi"head V-8 engine, transistor radios, fuel
injection and power steering.
1960s: New Chrysler models include the
Plymouth Valiant, Dodge Dart, Plymouth
Barracuda and Dodge Charger. DeSoto
1973: The first OPEC oil embargo drives up gas
prices, devastating big car sales.
1978: Lee Iacocca, just fired by Ford, is hired as
chief executive of Chrysler.
1979: Chrysler is rescued from bankruptcy by
Congress and President Carter.
1980: Carter signs the Chrysler Loan Guarantee
Act, providing $1.5 billion in loan guarantees.
1983: Sales improve dramatically with the debut of
introduction of the Dodge Caravan and Plymouth
Voyager, the first modern minivans. Chrysler pays
off government loans seven years early.
netting the Jeep brand.
7. Daimler-Benz Merger
In 1998, German automaker Daimler-Benz purchased Chrysler for $36 billion in
what was then regarded as one of the largest industrial mergers ever.
But the potential global powerhouse turned out to be a disappointment.
Cultural differences immediately caused a rift between the two companies.
Daimler, famous for luxury brands and affluent customers, didn't understand the
price-conscious concerns of the U.S. automaker. And worried that sharing
Mercedes components would undermine its brand
the German company broke its parts-sharing agreement with Chrysler, which
was just beginning to suffer from the current U.S. auto crisis.
During the 2008 automobile crisis, Chrysler announced
that they were dangerously low on cash and may not
survive past 2009.
Chrysler stated that they would most likely file for
bankruptcy and shut down all operations permanently.
On December 17, 2008, Chrysler announced that it
planned to halt production at all 30 of its manufacturing
In addition, Chrysler Financial announced that it would
charge fees on dealers holding inventories (New / used)
On December 19, President George W. Bush announced
a $13.4 billion rescue loan for the American automakers,
9. Chrysler Asks for Financial Aid
Dec. 2008: Sales declined by 54%.
Jan. 2009 Chrysler received US$ 4 billion federal loan, as part of
the loan agreement, Chrysler have to submit restructuring plan.
Restructuring plan Chrysler requested an additional federal loan
US$ 9 billion including the previous US$ 4 billion to continue its
10. Financial Aid- Cont’d
As part of the federal law agreement Chrysler was asked to submit a stand-alone
plan and a strategic partnership plan.
In order for Chrysler to be viable in a stand alone
basis certain assumptions should be considered
such as: restructure of financial matters, peruse a
strategic partnership and acquire additional
Chrysler will be more viable operationally and
financially with a strategic partner.
Chrysler signed a non binding agreement with
Fiat to enhance Chrysler’s viability plan, access
to fuel-efficient vehicle platform, distribution
capabilities and cost saving opportunities.
The US Treasury & US Auto Task Force rejected the Stand-alone Plan
11. Chrysler & Chapter 11
After receiving financial aid in the form of a federal loan of US$4 billion in January 2009,
out of the requested amount of US$7 billion, it had become increasingly difficult for
Chrysler to continue with its operations.
Chrysler asked for another US$2 billion federal loan over and above the US$7 billion loan
it had requested earlier.
The U.S. government made conditions:
Negotiate with UAW, and CAW to reduce costs. – already convinced them to reduce the cost
Establish an alliance with Fiat on or before April 30, 2009. – got the agreement
Restructure its debt - failed to get all its creditors to agree to debt restructuring
The company finally had to file for bankruptcy protection.
On April 30, 2009, Chrysler and its 24 wholly-owned U.S. subsidiaries filed for bankruptcy.
The company filed the bankruptcy under Section 363 so that it would be able to emerge
from bankruptcy within 30 to 60 days
As part of the bankruptcy filing, the U.S. Treasury was to give Chrysler a total of US$8
billion in additional aid including up to US$3.3 billion in debtor-in-possession financing and
up to US$4.7 billion in exit financing. Chrysler would have to repay the loan amount
within the next eight years
The new company would retain the Chrysler corporate name and would be run by a
board of nine members including six members appointed by the U.S. government and
three by Fiat
On May 5, 2009, the company’s bankruptcy was approved by the Manhattan
13. What Went Wrong?
• Fuel prices in the 1970s & the • Japanese competitors kept coming with
Asian carmakers of fuel-efficient
no react from Chrysler, and Chrysler did
vehicles with no react from
• Chrysler were making $1 billion a
quarter and had $12 billion in
cash, at the time sold Chrysler to
Daimler-Benz, when they should
have bought them.
• Daimler didn’t take advantage
of developing vehicles together.
• A quality-related issues dented the brand
image of its cars in the 1980s
• Daimler approved products that previous
• Increases in unemployment, and
affecting consumer spending.
• Chrysler’s market was restricted
to the United States alone, the
approved if they were completely drunk
affected its sales badly, leaving
• After Cerberus the company could not
the company struggling to carry
invest enough money in research and
on its business.
14. Fiat-Chrysler Alliance
In order for Chrysler to receive the government loan they had to show a long term viability
plan which included possible mergers.
Fiat needed to find a new market for its cars to balance the declining domestic market.
Fiat would have a strategic partner with operations based in the US.
Fiat would be able to utilize Chrysler’s distribution channels.
Chrysler had to find a new CEO (terms of the loan).
Thousands of auto workers in the US would be able to keep their jobs, and 573 new jobs
would be created.
"In addition, production of vehicles for Fiat in North America will allow Chrysler to increase its plant utilization,
helping to preserve and create in excess of 5,000 manufacturing jobs”
Both Fiat and Chrysler would help each other launch new vehicle models in the US.
15. The Challenges
Is the production of a small car by the new company would be successful in
the United States?
Is the Americans will embrace smaller cars or they buy the Italian small cars?
Is Fiat/Chrysler will find a way to make small cars profitable in North America?
Is the timing of Fiat’s entry into the United States market will be a success
“especially at the time of an economic slowdown”?
Chrysler being jointly owned by different entities such as the U.S.
Government, Canadian Government, Ontario Government, UAW, and Fiat.
The biggest concern now is: Do the different stakeholders have the ability to
make the tough decisions they need to make?