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
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
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
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
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.