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Chrysler in Trouble
Chrysler has faced many financial difficulties throughout its history. Most recently, Chrysler was struggling due to the global financial crisis in 2008 and was low on cash. Chrysler received $4 billion in federal loans but requested an additional $9 billion. The stand-alone restructuring plan was rejected, but a strategic partnership with Fiat was approved. Chrysler filed for bankruptcy in April 2009 and emerged from bankruptcy in June 2009 as a partnership between Fiat and the U.S. government. The alliance with Fiat provided Chrysler with fuel-efficient technology and access to new markets to help ensure its long-term viability. However, challenges remained in making smaller, more fuel efficient cars profitable in the U.S. market
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Chrysler in Trouble
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- 2. A Quick Brief Chrysler'sfuture 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.
- 3. 1934: The companyintroduces the Airflow, the first aerodynamically designed 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 Motors.
- 4. 1940: Walter Chryslerdies. 1942-45: With auto production shut down for World War II, Chrysler plants produce Sherman tanks and other military vehicles.
- 5. 1950s: Chrysler introducesa 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 production ends.
- 6. 1973: The firstOPEC 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 the well-received K-car platform and the introduction of the Dodge Caravan and Plymouth Voyager, the first modern minivans. Chrysler pays off government loans seven years early. 1987: Chrysler buys netting the Jeep brand. American Motors Corp.,
- 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.
- 8. Financial Crisis During the 2008automobile 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 plants 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 $13.4 billion rescue loan for the American automakers, including Chrysler.
- 9. Chrysler Asks forFinancial Aid In Dec. 2008: Sales declined by 54%. In Jan. 2009 Chrysler received US$ 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 operations.
- 10. Financial Aid- Cont’d Aspart of the federal law agreement Chrysler was asked to submit a stand-alone plan and a strategic partnership plan. Stand-alone Plan In order for Chrysler to be viable in a stand alone Strategic Partnership basis certain assumptions should be considered such as: restructure of financial matters, peruse a strategic partnership and acquire additional funds. 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 & Chapter11 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.
- 12. Bankruptcy 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 Bankruptcy Court
- 13. What Went Wrong? PoorBusiness Strategy The Global Financial Crisis Lack of Innovation • 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 not Chrysler. • 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. live up to the consumer’s expectations. • A quality-related issues dented the brand image of its cars in the 1980s • Daimler approved products that previous Chrysler management wouldn’t have • Increases in unemployment, and declines in incomes started affecting consumer spending. • Chrysler’s market was restricted to the United States alone, the global financial originated in crisis the which country 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 development on its business.
- 14. Fiat-Chrysler Alliance In orderfor 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 needed fuel efficient engine technology to make smaller eco-friendly cars. 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 theproduction 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?
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