Arrivederci, Chrysler
Nearly 20 years ago, former Chrysler president Bob Lutz and I had a nice chat after a memorable dinner at Stars restaurant in San Francisco. With an after dinner drink in one hand and a cigar in the other, Lutz talked about the coming resurgence of Chrysler. Not remarkably, the venerable automaker was on the ropes financially, with an aging product lineup of K-cars that Lutz described as “unremittingly rectangular.”
Bob was quite upbeat, despite the dire news in the business and trade media about Chrysler’s woes. When I asked how he could be so positive, he replied that Wall Street had written them off, so he and colleagues like designer Tom Gale were free to concentrate on new products and not worry about quarterly profit. I asked what he thought of the speculation that Fiat might acquire Chrysler. Lutz laughed in response and thought that would be a crazy idea.
So here we are in 2009 with Lutz at General Motors, Gale retired, and the current management of Chrysler dying to tie the knot with the little car company from Italy. Of course at this point Chrysler’s owner, Cerberus Capital Management, and its investors would gladly bequeath the automaker to anyone with six figures in a bank account and an American Express card with a decent line of credit.
Reasonable people might conclude that the few Chrysler veterans who remain with the company would hardly welcome another cross-the-Atlantic joining of two very different car cultures. Chrysler people went to that 1998 movie titled Merger of Equals, starring Jürgen Schremp, Dieter Zetsche, Robert Eaton, and a cast of (mostly German) thousands. The comic/tragic plot that produced DaimlerChrysler didn’t end well and there’s little reason to believe that FiatChrysler will play any better in Peoria or Motown.
From a product point of view, combining Chrysler’s trucks, SUVs, and minivans with Fiat’s small and midsize cars makes sense. Back in ’98, Daimler was sure that Chrysler’s bread and butter offerings would blend nicely with its loftier Mercedes-Benz. But alas, synergies don’t just happen — especially when things like culture, laws, language, and distance separate the two dance partners.
Then there’s the money. Fiat has a bit more than Chrysler, but in major automaker terms, it’s a degree of poverty. The Italian company has its own history of fortune turning to famine and while it’s currently turning a small reported profit, Fiat’s debt has jumped to three times its recent forecast to $8 billion. So to make this union work, we (you and I) have to loan Chrysler another $3 billion so Fiat can own 35% of Chrysler.
Didn’t we already rescue Chrysler once in the ’80s? That turned out splendidly, didn’t it? I see no reason another bail-out would result in a more positive outcome this time around.
Let them fail.
Italians like unions and socialism so maybe
they are a good match. Also beware Jeep,
anyone who owned it is defunct(Willys, Kaiser,
AMC and now Chrysler). Looks like bad karma,
except for Jeep.
On the plus side, the real disaster of the Daimler merger was that the Germans actively tried to wreck Chrysler’s attempts to improve their higher end cars because of their fears for the value of the Mercedes marque. At least with FIAT, this won’t be a problem.
Unfortunately, any deal that includes UAW employees, labor contracts and hostile work rules is doomed to fail. That’s the main reason Chrysler is on the ropes to begin with.
No company can compete against $40 per hour labor costs with $75 per hour labor costs. It’s a fatal mathematical albatross, and Chrysler is history.
A few months ago, when Mervyn’s department stores was closing for good, we saw a thing on the news with the actual Mervyn himself decrying the fall of his company, which he had sold 20+ years before. Apparently Mervyn himself was a canny character, and he decided to avoid one of the pitfalls of retail businesses: he always owned his own stores. I don’t mean the businesses, I mean the real estate and the structures that are built on it. Guess who the new owner of Mervyn’s was, eventually? You guessed it, Cerberus Capital. Care to guess what they did with Mervyn’s? They sold the physical stores to another entity they owned, a real estate holding company. I didn’t see the sale price during the broadcast, but the rent the company was charged for occupying buildings it used to actually own put Mervyn’s out of business. Then Cerberus (pretty much in the same month) asked the taxpayers for a bailout of Chrysler. Cute, isn’t it?
Had Lee Iacocca simply put personal differences aside and not prevented Bob Lutz from becoming CEO, Chrysler’s history would be far different. Bozo Bob Eaton took control of Chrysler in the early 1990s when a chimp could have made great profits – Jeep, the LH models and the new Ram truck. Unfortunately Eaton decided to line his pockets while selling Chrysler down the river.
Iacocca admits this was the biggest mistake in his career,
Oscar – actually, the 80′s loan did turn out splendidly. It was repaid ahead of schedule and with interest. Brian C. and Roy are correct…Chrysler failed in the 90′s mostly due to Eaton and then the Germans raiding profitable Chrysler to fix Mercedes when it was in the red.
It’s getting obvious that what we really need is a simple constitutional amendment to address this madness:
Neither the United States, nor its constituent states, shall subsidize any incorporated entity nor shall they transfer any funds to the same except to procure goods and services for the use of official government responsibilities. All transfers of wealth to private citizens, except for the refunding of taxes, shall be subjected to the full scrutiny of the judiciary without limitation, and shall only be lawful in such cases as they may present a clear public benefit or are for the purpose of redressing an injustice committed against that individual.
I have bought my last GM or Chrysler car.
For me, the red flag here is this: the last I knew, Fiat’s products were junk. I used to work with a woman in Buffalo, NY, who was dating a Fiat salesman from Toronto, ON. When he’d visit her, he would NOT drive a Fiat, saying he didn’t dare take one that far from the dealership. This was a trip of around 70 miles one-way, if I remember correctly.
Now, maybe they have improved since then. But do we want to bet three billion big ones on that hope?