A decade ago, the company was sitting on top of the automotive world. Then the Germans took over - but you can't blame them for everything.
NEW YORK (Fortune) -- The survival of Chrysler as an independent company is looking increasingly unlikely.
The fundamentals of its business structure - unappealing passenger cars, dismal quality, little technology, minimal international operations - are scary enough. Meanwhile, continuous rounds of layoffs have hollowed out the company, starving it of the basic resources it needs to engineer, manufacture and market automobiles.
One executive described Chrysler as looking like an imposing castle from the outside, but actually being empty once you got beyond the front door.
Now debt-holders are balking at government demands to take a haircut, car sales show no signs of improving, and the government's May 1 deadline for demonstrating viability is fast approaching. Having escaped bankruptcy in the late '70s and again in the early '90s, Chrysler appears to have run out of options.
Fiat, once held out as Chrysler's last hope, no longer needs to go through the trouble of a formal takeover. It could easily cherry-pick the company's assets in a liquidation. It would cost the Italian automaker a few bucks more, but it would be a lot cheaper in the long run.
So what happened to Chrysler?
While General Motors has been on a slippery slope for 40 years, the roots of Chrysler's decline are more recent. At the time of its merger with Daimler in 1998, it was the hottest company in Detroit.
With its dream team of engineers, designers, and marketers, Chrysler had created a high-profit lineup of minivans, pickup trucks and Jeeps. At one point, its CEO, Robert J. Eaton, was fantasizing about 20% market share and 8% profit margins. Mixing in Daimler's technical resources, global reach, and the always-tantalizing benefits of synergy should have created a Chrysler recipe for success.
But the Germans hamstrung their new American unit more than they helped it. Their formal business structure clashed with Chrysler's more freewheeling ways and promised resources took a long time to make their way from Stuttgart to Auburn Hills.
And Chrysler made plenty of mistakes on its own. The dream team disbanded, engineering costs skyrocketed and an ill-conceived efficiency program hurt vehicle quality and customer appeal.
In retrospect, the fatal blow was struck when then-CEO Dieter Zetsche tried to stretch the product development budget by churning out more new models with less money. It sounded like black magic -- and as it turned out -- it was.
What Chrysler produced were half a dozen derivative models with eye-catching but cheesy styling, bargain- basement interiors and the worst quality in Detroit. Customers caught on quickly. This year, sales of many models are just one-third of what they were just a year ago:
-- 3,186 copies of the square-cornered Jeep Commander, derided as the box that the smaller Grand Cherokee came in, sold in the first quarter, compared with 9,648 a year ago.
-- The smaller, clunkier and even more angular Jeep Compass performed even more poorly, with 3,147 sold in the first quarter versus 10,400 in the same 2008 period.
-- Looking like an extra from a "Transformers" movie, the Jeep-based Dodge Nitro has lit very few fires. Exactly 5,218 have found buyers this year, as against 15,355 last year.
A special place in the Chrysler Hall of Shame should be reserved for the executive who green-lighted the Sebring sedan. Designed to compete against the Toyota Camry and the Honda Accord, the Sebring became a total flop in the midsize segment by trying to combine the virtues of a higher "command seating" position with traditional four door styling. The awkward design satisfied no one. Chrysler managed to sell 30,411 Sebrings in the first three months of last year but just 5, 636 this year.
Instead of 20% market share, Chrysler has notched just 11.2% of U.S. sales in 2009. And of course its profit margin is less than zero.
With that kind of product lineup, why would Fiat want to rush in to save the company? The redesigned Jeep Grand Cherokee looks promising, but its arrival in dealer showrooms is many months away. A new Chrysler 300C is on the way, too, but its day may have come and gone. Designs that really turn heads rarely have legs.
Fiat would be far better off bidding for Chrysler's viable pieces after the lights are turned off: the Jeep Grand Cherokee and Wrangler; Chrysler and Dodge minivans, and Dodge trucks.
After it buys the cars and trucks, it may want to acquire the valuable Saturn network from General Motors to have some dealers through which to sell them. And then Chrysler can join American Motors, Studebaker-Packard and all the other departed in the automotive graveyard.
NEW YORK (Fortune) -- The survival of Chrysler as an independent company is looking increasingly unlikely.
The fundamentals of its business structure - unappealing passenger cars, dismal quality, little technology, minimal international operations - are scary enough. Meanwhile, continuous rounds of layoffs have hollowed out the company, starving it of the basic resources it needs to engineer, manufacture and market automobiles.
One executive described Chrysler as looking like an imposing castle from the outside, but actually being empty once you got beyond the front door.
Now debt-holders are balking at government demands to take a haircut, car sales show no signs of improving, and the government's May 1 deadline for demonstrating viability is fast approaching. Having escaped bankruptcy in the late '70s and again in the early '90s, Chrysler appears to have run out of options.
Fiat, once held out as Chrysler's last hope, no longer needs to go through the trouble of a formal takeover. It could easily cherry-pick the company's assets in a liquidation. It would cost the Italian automaker a few bucks more, but it would be a lot cheaper in the long run.
So what happened to Chrysler?
While General Motors has been on a slippery slope for 40 years, the roots of Chrysler's decline are more recent. At the time of its merger with Daimler in 1998, it was the hottest company in Detroit.
With its dream team of engineers, designers, and marketers, Chrysler had created a high-profit lineup of minivans, pickup trucks and Jeeps. At one point, its CEO, Robert J. Eaton, was fantasizing about 20% market share and 8% profit margins. Mixing in Daimler's technical resources, global reach, and the always-tantalizing benefits of synergy should have created a Chrysler recipe for success.
But the Germans hamstrung their new American unit more than they helped it. Their formal business structure clashed with Chrysler's more freewheeling ways and promised resources took a long time to make their way from Stuttgart to Auburn Hills.
And Chrysler made plenty of mistakes on its own. The dream team disbanded, engineering costs skyrocketed and an ill-conceived efficiency program hurt vehicle quality and customer appeal.
In retrospect, the fatal blow was struck when then-CEO Dieter Zetsche tried to stretch the product development budget by churning out more new models with less money. It sounded like black magic -- and as it turned out -- it was.
What Chrysler produced were half a dozen derivative models with eye-catching but cheesy styling, bargain- basement interiors and the worst quality in Detroit. Customers caught on quickly. This year, sales of many models are just one-third of what they were just a year ago:
-- 3,186 copies of the square-cornered Jeep Commander, derided as the box that the smaller Grand Cherokee came in, sold in the first quarter, compared with 9,648 a year ago.
-- The smaller, clunkier and even more angular Jeep Compass performed even more poorly, with 3,147 sold in the first quarter versus 10,400 in the same 2008 period.
-- Looking like an extra from a "Transformers" movie, the Jeep-based Dodge Nitro has lit very few fires. Exactly 5,218 have found buyers this year, as against 15,355 last year.
A special place in the Chrysler Hall of Shame should be reserved for the executive who green-lighted the Sebring sedan. Designed to compete against the Toyota Camry and the Honda Accord, the Sebring became a total flop in the midsize segment by trying to combine the virtues of a higher "command seating" position with traditional four door styling. The awkward design satisfied no one. Chrysler managed to sell 30,411 Sebrings in the first three months of last year but just 5, 636 this year.
Instead of 20% market share, Chrysler has notched just 11.2% of U.S. sales in 2009. And of course its profit margin is less than zero.
With that kind of product lineup, why would Fiat want to rush in to save the company? The redesigned Jeep Grand Cherokee looks promising, but its arrival in dealer showrooms is many months away. A new Chrysler 300C is on the way, too, but its day may have come and gone. Designs that really turn heads rarely have legs.
Fiat would be far better off bidding for Chrysler's viable pieces after the lights are turned off: the Jeep Grand Cherokee and Wrangler; Chrysler and Dodge minivans, and Dodge trucks.
After it buys the cars and trucks, it may want to acquire the valuable Saturn network from General Motors to have some dealers through which to sell them. And then Chrysler can join American Motors, Studebaker-Packard and all the other departed in the automotive graveyard.
