Tue, Feb 06, 2001 EST
fundsnav.gif (2552 bytes)
account management
business home

Chrysler, Once Mighty, Struggles to Survive Crisis
By David Goodman   Associated Press
DETROIT — Twenty-three years ago, Lee Iacocca saved Chrysler Corp. from bankruptcy by negotiating a $1.5 billion federal bailout package, closing plants and laying off workers.

The automaker was restored to health and became an industry leader.

But today a new financial crisis threatens Chrysler, now a unit of Germany's DaimlerChrysler AG, after what was to have been a "merger of equals."

Chrysler had a third-quarter loss of $512 million and warns its fourth-quarter loss could be more than $1 billion.

In the most dramatic sign yet that the 1998 merger of the German and American automakers is not living up to its promise, DaimlerChrysler plans to cut 26,000 jobs at its money-losing Chrysler division.

It will take shrewd leadership and strong new products for Chrysler to survive the auto industry's continuing consolidation and brutal global competition, some experts say.

"It's a serious problem. It's not necessarily a fatal one, but it could become one if they don't do something on an urgent basis," said David Cole, director of the Center for Automotive Research at the Environmental Research Institute of Michigan. "There's nothing to get your attention focused like your impending hanging."

Chrysler has known hard times before.

The smallest of the Big Three U.S. automakers, it was caught unprepared in the 1970s by spiking gasoline prices and the public's shift to small cars.

Chrysler's board turned to Iacocca, former president of Ford Motor Co., in 1978, and he negotiated the bailout package.

As part of the deal, then-United Auto Workers President Doug Fraser joined the Chrysler board.

"Much is written about Lee Iacocca," Fraser, now a professor in Wayne State University's College of Urban, Labor and Metropolitan Affairs, said Monday. "It's the Chrysler workers who saved Chrysler Corp."

The job cuts, plant closings and popular new vehicles worked to reverse Chrysler's fortunes.

As American tastes shifted from cars to high-profit sport utility vehicles and minivans, Chrysler became an industry leader in per-vehicle profits.

Chrysler workers, who made concessions to save the company, were rewarded with an average of $36,000 each in profit-sharing for 1994-99, Fraser said.

But as trade barriers fell, competition became tougher than ever in the 1990s, and companies began to seek advantage through mergers and acquisitions, Cole said.

Among those consolidations was the creation of DaimlerChrysler through the merger of Chrysler with Germany's Daimler-Benz AG in 1998.

The new German-led company did not stop there, recently buying large stakes in Japan's Mitsubishi and South Korea's Hyundai to extend its global reach into Asia.

The Mitsubishi and Hyundai acquisitions were a "tremendous drain on cash, as well as on management attention," Cole said.

Both factors left the company vulnerable when the U.S. economy markedly slowed in November and demand for Chrysler's high-profit light trucks fell, he said.

In response, DaimlerChrysler Chairman Juergen Schrempp sacked Chrysler's top American management, installing Dieter Zetsche as Chrysler boss in November. He made various cuts, leading up to Monday's 20 percent work force reduction.

"To be truly competitive in today's auto industry environment, we need to be a more nimble company, more closely aligned with current and future market conditions," Zetsche said Monday.

Fraser said comparisons with Chrysler's brush with bankruptcy two decades ago are unwarranted.

"This situation is not nearly as difficult as it was in 1979, '80 and '81," he said.

In the long run, what matters most is Chrysler's ability to develop and make vehicles that people want to buy, said analyst David Garrity of Dresdner Kleinwort Benson in New York.

The company has some promising new vehicles in the pipeline, among them the Jeep Liberty. The light but off-road capable SUV goes on the market later this year.

Chrysler will survive, but not necessarily in its present form as a unit of DaimlerChrysler, Cole predicted. DaimlerChrysler has denied it plans to unload Chrysler.

If consumer confidence rebounds as a result of interest rate and tax cuts, Chrysler could emerge healthy and profitable, he said.

"If it continues to fall, we've got a real problem," he said.

More Marketwire More MarketWire News Top of Page

© 2000, News Digital Media, Inc. d/b/a Fox News Online
All rights reserved. Fox News is a registered trademark of 20th Century Fox Film Corp.
Data from Thomson Financial Interactive is subject to the following Privacy Statement
© 2000 Associated Press. All rights reserved.
This material may not be published, broadcast, rewritten, or redistributed.
© 2000 Reuters Ltd. All rights reserved