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A general history of Chrysler Corporation and DaimlerChrysler through 2006

by Jacob Smith

The former Chrysler Corporation has had quite a storied history. Its most glorious moments, however, do not seem to be the most memorable. Many people only associate Chrysler, especially within the last thirty years, with poorly built products, financial trouble, and a merger with a foreign company. Judging Chrysler in this manner does not do justice to a once great company that despite decades of setbacks seems to be back on track.

Walter P. Chrysler, founder of Chrysler Corporation, started his career working for the Chicago & Great Western Railroad. After visiting the 1908 Chicago Automobile Show, the mechanically-inclined Chrysler convinced a bank to loan him $4300, a large sum of money then, so that with his family savings of $700, he could purchase a Locomobile. He did not drive the car, but instead disassembled it and reassembled it. (Hyde 1-2)

Soon after, W. P. Chrysler landed a job in railroad manufacturing. Traveling from company to company as a man in demand, he implemented cost-cutting measures across the board and streamlined manufacturing. In 1912, he joined the Buick Division of General Motors to help in cost cutting. By the time he left in 1919, he was executive vice president of General Motors. After leaving, he worked with the automobile companies Willys-Overland, Maxwell, and Chalmers, saving all three from bankruptcy. (Hyde 5-13) [Webmaster note: Chrysler was not a "butcher" type cost-cutter, but an intelligent, reasoning leader who helped people to work more effectively and build on company strengths. His recovery work was long-lasting.]

The New York Auto Show, held in January of 1924, would change both automotive history and Chrysler. W. P. Chrysler introduced his Chrysler Six automobile, featuring a superb six-cylinder engine but also a great deal of advanced body engineering. It was an instant success, with four different models including a lower-priced four-cylinder model and the Chrysler Imperial at the top of the line. Speed records were broken and new records were set. Chrysler cars epitomized excellent and effective engineering. (Hyde 29-33) [Webmaster note: this car was developed largely by the engineering team headed by Carl Breer, Fred Zeder, and Owen Skelton.]

The Chrysler Company was chartered as a Delaware corporation on June 6, 1925. The Maxwell Automobile Company disappeared, and Chrysler assumed their debts. In 1928, Chrysler Corporation bought the Dodge Brothers automotive operation, and launched two new brands later that year, Plymouth and DeSoto. (Hyde 36-38) [It has been said that Chrysler bought Dodge Brothers mainly to gain capacity for building Plymouth, while the motivation behind DeSoto has been said to have been to put pressure on Dodge Brothers to sell.]

Before the merger of Chrysler and Dodge, Walter P. Chrysler, almost prophetically, was thinking long-term about the future of Chrysler, and looking for a partner to ensure that future. The Dodge Brothers had modern assembly plants and a huge dealer network to support growth. Immediately post-merger, the combined dealer network was about 9,000 franchises. By 1929, there were 12,000 US dealers, 2,600 dealers in Canada, and 3,800 overseas. (Hyde 68-70) The Merger was "a good deal for everyone" according to the Magazine of Wall Street (Hyde 70). It was after this that the so-called "Big Three" was formed, made up of General Motors, the Ford Motor Company, and Chrysler Corporation.

The Automotive Daily News offered this analysis:

"Exactly what is to gain in the whole transaction? The Chrysler [sic], one of the strongest organizations in the industry, acquires an extremely efficient and well located plant, capable of higher production, even, than its past records prove it can give. The most important gain that Chrysler makes is unquestionably increased representation. It costs much time and money to build a dealer organization, and by this merger, Chrysler is taking over a full-fledged and powerful merchandising army." (Hyde 70)
[Two factors would slow Chrysler's meteoric growth. One was the Airflow disaster, where advanced engineering and superior ride and handling were ignored due to unpopular styling; which resulted in stodgy styling until 1957, keeping Chrysler from getting its full share of the market. The second was the 1957 qualtiy disaster, which would permanently remove Chrysler's reputation for superior quality. The 1950s brought increasing bureaucracy and, some argue, corruption into the company, and the advanced engineering started, in some places, to slip, with less willingness to experiment in the late 1960s and onwards. In addition, resources were spent somewhat foolishly or at least unfortunately in the late 1960s and 1970s, with funding given to the E-bodies instead of keeping the A-bodies fully up to date, and with new large cars being brought out at just the wrong time. There were also serious reliability issues with the 1976 Volare/Aspen and, later, Lean Burn carburetors, and mechanic ignorance regarding repairs to the advanced electronic ignition system starting around 1972 did not help the company either.]

In contrast, Chrysler was in serious financial trouble by 1976. It would have been hard to imagine this back when W. P. was at the helm, but years of mismanagement and shortsightedness led to serious bankruptcy avoidance tactics. Between 1976 and 1979, Chrysler raised $600 million through asset liquidation. They also increased their long-term debt and extended their short-term credit, all to avoid immediate bankruptcy. Nineteen seventy-nine saw losses of $1 billion. CAFE (Corporate Average Fuel Economy) regulations damaged Chrysler because of a lack of small car offerings in their lineup with adequate fuel mileage. (Hyde 228-232)

In 1978, on November 2, Lee Iacocca became president of Chrysler, just as the United States was entering a recession that would last until 1982. Energy prices were high, inflation was over 10%, auto loans held interest rates greater than 20%, auto sales fell, and foreign automakers gained market share during this period, to 25%. Iacocca immediately changed management. He faced serious problems, including inept management, unappealing products, and high production costs on products with poor quality. (Hyde 233-240)

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John Riccardo, chairman of Chrysler, lobbied Congress in 1979. He argued that the new regulations of safety, emissions, and fuel efficiency would hurt Chrysler financially, and that the government should provide relief. Sec. Treasury William Miller denied a $1 billion tax credit plan, but proposed a loan guarantee package with a maximum of $750 million. Under the package, if the automaker raised $2 billion on its own through concessions and loans, the government would lend $1.5 billion. On January 7, 1980, President Carter signed the Chrysler Loan Guarantee Act. (Hyde 240-245)

After the money for immediate survival and a turnaround plan was procured, Iacocca and others began work on new products. The K-car, a small, economical vehicle, sold very well, generating profits for Chrysler. All loans were repaid seven years early, in 1983. The bankers received a check from Chrysler for $813,487,500. (Hyde 253-255) In just one year after that, the minivan came out, boosting sales dramatically from its first year onwards.

With profitable vehicles and climbing sales, it was time for Chrysler to expand. Chrysler wanted the American Motor Company for its legendary Jeep division. For this takeover to happen, many debts were assumed by Chrysler, but nothing it could not handle. Renault, which had a 46% share in AMC before the merger, shared lawsuits resulting from Jeep CJ rollovers equally with Chrysler. A small drawback of the merger was the age of AMC's plants in Kenosha, Wisconsin and Toledo, Ohio. (Hyde 275-279)

Chrysler's successes in the early nineties can be attributed to many things, including cost cutting, corporate efficiency, and calculated risk-taking. A major portion of that success comes from, among other things, platform engineering. Platform engineering is a streamlined, communication-based method of developing a new vehicle. Normally, in traditional vehicle development, there are five departments involved: design, engineering, procurement/supply, manufacturing, and sales. Each time there is a change or revision made to the design or plan, the new change must be sent back to the beginning of the chain, and all departments are simultaneously working on all vehicles that are currently being developed. This method, although an industry standard, is slow, non-communicative, somewhat unproductive, and expensive. Platform teams, on the other hand, have the responsibility of just one car. Design, engineering, procurement/supply, manufacturing, and sales work together on one car specifically rather than just their particular responsibility for all cars in general. This method of using platform teams is speedy, communicative, productive, and less costly than the traditional method. (Lutz 19-45)

With platform teams up and running and the success of the K car and minivan in the not too distant past, Chrysler was on a roll. Introduced in 1993, their three LH cars, the Dodge Intrepid, Chrysler Concorde, and Eagle Vision, as well as the Viper sports car, introduced in 1992, were the first platform team-designed cars and were smashing successes. The minivan, now in its second generation, was selling better than ever. It seemed as if nothing could stop Chrysler; along came Kirk Kerkorian. Kerkorian was the largest shareholder of Chrysler Corp., with 36 million shares. He wanted to buy Chrysler and take it private. He could have bought it for $23 billion, and he thought it was immensely undervalued on the market. Through a complicated process, he attempted an LBO (leveraged buyout), but failed.

These talks led to Chrysler seeking a partner to avoid being bought out. Daimler-Benz was to buy a stake in Chrysler and vice versa in order to avoid Kerkorian's buyout. At the same time these talks were taking place, Robert Eaton, CEO of Chrysler, was examining the long-term future of Chrysler as a result of the LBO scare. He determined that Chrysler needed a partner to enter the global marketplace [Chrysler had been slowly increasing its global presence at that time]. Daimler would [theoretically] not only help Chrysler go global to ensure its future in new markets and all together, but would prevent Kerkorian from achieving his planned LBO. (Vlasic & Stertz)

Post-LBO attempt analysis [by most analysts] showed Daimler and Chrysler to be excellent compliments. They had no product overlap, each was strong where the other was not. Chrysler was very profitable, and brought their new vehicles quickly to market using their ingenuous "platform teams." Daimler had a good deal of advanced luxury-car technology and research. Financial powerhouse Merrill Lynch said that the combination was highly complimentary, adding that they would achieve long-term objectives without starting clean, which is risky and expensive. These two entities, joined as one, would be very profitable and extremely strong financially [though closer investigation could have revealed that Daimler-Benz's core auto business was actually not profitable, and the entire D-B house earned lower profits than comparatively small Chrysler Corporation]. This merger seemed to be a "no-brainer." The shareholders were convinced, as were the unions and politicians. In fact, many wondered why no one thought of this before, or why no one saw it coming. (Waller 141-142)

In addition to highly complimentary products, Chrysler and Daimler shared many notions as to the future of the automotive industry. Among them was a limited growth potential in existing markets such as the United States and Europe, and the possibilities of growth in emerging markets such as Asia, South America, and Africa. Mercedes Benz, as Daimler's lone and premium automotive brand, couldn't open in these new markets, but with Chrysler onboard, it was a possibility. Mercedes had a dealer network in these new markets but the wrong product to sell to the existing demographic. In contrast, Chrysler had no dealer presence but had proper vehicles for these markets. (Waller 145-149) An interesting side note is that these facts were the focus of the "Q-star" talks in 1995 and 1996 between Daimler and Chrysler for a joint venture in non-US/Europe markets, but that never materialized. BMW, a Daimler (Mercedes-Benz) rival, ended up in the joint venture with Chrysler, producing small gasoline engines in Brazil (later to power the BMW-engineered Mini Cooper).

Eaton's previous analysis of the auto industry in general had led him to one simple and frightening conclusion: a "perfect storm" was brewing in the auto industry. Just as in the book Perfect Storm, where three storms converge to form one massive storm greater than the sum of its parts, Eaton thought three economic setbacks would take place simultaneously, spelling disaster for unprepared car companies. The first setback would be a global industry-wide over-capacity, with a capacity to build 79 million vehicles worldwide and a demand of only 61 million vehicles worldwide. The second setback was to be the retail revolution, the name given to the ever-changing methods consumers use to purchase new vehicles. The internet and buy-by-phone were becoming commonly used methods, as was superstore retailing, such as the AutoNation stores, which carry several automotive brands and inventories of thousands of vehicles. Because of their sales volume, profit per vehicle can be maintained at a low number. The third setback was to be a change in technologies. Hybrid vehicles, using internal combustion engines and electric motors in tandem, and vehicles powered by fuel cells, were already being tested for mass production and widespread use. Unprepared companies would be empty-handed if caught off guard. (Waller 153-155)

Another reason for the merger was that Eaton wanted Chrysler to be the premier automotive company in the world by the year 2000. Eaton did not thinnk Chrysler could achieve this by itself, but a merger with Daimler could help to facilitate that. Adding to this impossibility was that Chrysler's main weakness was international operations. Overseas sales growth had leveled off by 1997. (Waller 154)

The final straw that convinced many a merger was necessary was that the Kerkorian buyout scare had been a warning. Chrysler was vulnerable even when they were strong and healthy. They were not a large enough company to be immune from recessions and takeovers. It was thought that to be strong was to be larger. (Waller 155)

The details of the merger between Chrysler and Daimler were often contested and barely agreed upon. Chrysler wanted the name to be ChryslerDaimlerBenz or ChryslerDaimler. Mercedes, on the other hand, wanted it to be DaimlerChrysler. This simple element was not agreed upon until right before the merger announcement. The reason it was so hotly contested was because the name of the new company expressed points of emotion, power, control, patriotism, and pride, which are all sensitive issues. For public relations reasons, however accurately or not, it had to be labeled as a "merger of equals" in order to avoid thoughts of takeovers or buyouts entering the already tense situation. (Waller 171-172) If not perceived correctly, this merger, because it was with a foreign company, could alienate Chrysler from not only politicians and the government, but also with workers who sacrificed so much during the loan guarantee period and cost-cutting endeavors. The pertinent question was: Should America's sweetheart success story fall into German hands? (Waller 174-175)

On the financial side, Chrysler shareholders would receive .6235 shares of the new company for each single share they held of Chrysler. This worked out to be a 28% premium on their stock at then-current prices. As far as corporate structure, the management would be divided equally among Daimler and Chrysler, and heading the company would be two cochairmen, Robert Eaton, CEO of Chrysler, and Jurgen Schrempp, CEO of Daimler. (Vlasic & Stertz 224-227)

Immediately after the merger, advantages were manifested. Mercedes' M-class SUV, built in Alabama, was in such demand that there were waiting lists, and the factory could not keep up. Chrysler had a facility in Graz, Austria that assembled Jeep Grand Cherokees that was operating below capacity. Although the Grand Cherokee and the M-class were completely different vehicles, because of Chrysler's flexibility in manufacturing, both vehicles were assembled on the same line! Mercedes vehicles being assembled in a Chrysler plant on the same assembly line as a Jeep resulted in a savings of much time and $70 million over the cost of building another factory. (Vlasic & Stertz 265-266)

This immediate gratification did not last long, however. Rumors of the "merger of equals" actually being an intentional takeover spread like wildfire. Daimler was dominating Chrysler. More than 12 veteran Chrysler officials had retired or been fired by March of 2001. Chrysler experienced losses of $512 million during the third quarter of 2000, the first such losses since 1991 [operating under German laws, Daimler could easily suck money out of Chrysler without outside detetion]. Minivans were big business for Chrysler, but vehicles such as the Honda Odyssey, Mazda MPV, and Toyota Sienna were gaining ground and cutting into Chrysler's profits. Further lowering Chrysler's profits were the heavy rebates and low-interest financing offered by Chrysler to combat falling sales. The new president of Chrysler, Dieter Zetsche, was from Mercedes. There was a lawsuit filed over whether Schrempp deceived shareholders by calling it a "merger of equals." He was quoted as saying he [had always] "wanted to operate Chrysler as a division" (Edmunds) [and in other parts of the same interview, made it clear that the merger of equals had been a sham.] Also, since the merger, stock prices have fallen from $108 in early 1999 to under $27 in March of 2003, with a closing price on December 26, 2003 of a still low $45.91. (Hakim)

Some wondered whether the merger would ever pay off. The merger had not delivered the profits it promised, and people wondered whether it ever would. Chrysler had deteriorated in what could be considered the best industrial conditions. Its market share in 1998 was over 16%, but today it rests around 13%. Similarly, its profits in 1998 were $5.4 billion, but last year were only $639 million. Adding to this is the rise of consumer purchasing incentives. D-B can't be blamed for all of this though. Shortsightedness, overdone costs, risky decisions, and lack of foresight can be blamed. During the first year for Dieter Zetsche as president, however, Chrysler was supposed to have profits of $2 billion and offer no incentives. Chrysler ended up losing $1.1 billion during that period, and was still offering incentives. The reasons include rising marketing costs, high incentives, and over-residualized off-lease vehicles. There were simply not enough new products offered to ward off competition. Following the "merger of equals" lawsuit, rumors cropped up that Schrempp wanted to dump Chrysler. Who would want it, however, and why would he want to undo the largest deal in history? As an example of the extent of the situation, Renault had bought the near-bankrupt Nissan and turned them around in less time than DaimlerChrysler had existed. (Howes)

Many people also criticized the management decisions taking place at Chrysler. Critics said they were not concentrating on things they did well, like mass-producing value centered cars and trucks. People wondered why they would invest in building a low volume coupe, the Mercedes-based Chrysler Crossfire. Others wondered why DaimlerChrysler would develop the multi-hundred thousand-dollar ultra-luxury Maybach sedan and then argue that they couldn't afford to develop an economy car [and eliminated Plymouth]. Critics also pointed out the continuing presence of incentives and the near absence of cost cutting. They thought dropping the economical Plymouth brand was a mistake, and that trying to bring Chrysler upscale but cheapening its image with inexpensive cars at the same time was also a misstep.

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It should be pointed out though that it was not all bad news at Chrysler. They were most improved on efficiency among the industry, with an 8.3% gain. Warranty costs per vehicle have been cut in half since 1996, and warranty spending was down 20% for 2002. (Howes) Component and information sharing is now happening, which is [theoretically] lowering costs. [Some argue that the jointly designed LX cars are evidence that the merger is now working, though the redesigned Grand Cherokee seems to have benefitted Mercedes far more than Chrysler. Others argue that Chrysler, constrained by a lack of funds since barely after the merger, would have been far better off on its own, with an estimated $8-12 billion war chest that would have prevented downsizing, eliminated any "need" to end the Plymouth brand, and provided more engineering and production options, instead of making each new model an "either-or." One thing is certain: we have no way of knowing what would have happened had Bob Eaton not been so frightened of a takeover by Kirk Kerkorian that he ran right into the waiting arms of Juergen Schrempp].

[Bracketed items added by Allpar.]

See lots more on our Chrysler history page.

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