CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Chrysler: From High To Low, Driving On A Rocky Road

Andrew Brown, Claudia Loelke, Efrain Beauchamp, Tiffany Estevez

Leadership Challenges and Supervision MAN 4120
Professor Mary Dolan Broward College
June 16, 2014

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Abstract

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

The all American Company Chrysler originated from the Maxwell Motor Company, Inc.
which was formed in 1913. When Maxwell Motors faced severe financial problems in 1920 and
saw itself in ruins, its creditor bank recruited outside help from Walter Chrysler, the former Vice
President of General Motors, who had just resigned his job due to differences with GM Chief
Durant. Chrysler became executive Vice President of Willys-Overland Co. which was in serious
debt. He was offered total control over the company and a two year contract with an annually
salary of $1 million. Walter Chrysler was worth his money. He turned the company around in just
two years.
At the same time, Creditor banks of Maxwell Motor Company, which was owned to 90
percent by Chalmers Motor Company recruited Chrysler as well to work his magic. In 1921
Walter Chrysler becomes chairman of Maxwell Motor Corporation, which then becomes
Chrysler Corporation four years later worth $ 400 million in shares. The company starts
manufacturing competitive cars with never before seen six-cylinder and reports a net profit of $4
million that year. Walter Chrysler, now president of the company, originates Chrysler Canada
and has a total of 3,800 dealerships in the U.S. by 1926.
New inventions and top speed models by the automaker catapults Chrysler Corporation
to place five of all American automaker. That year Chrysler introduces the first ever luxury
automobile E-80 Imperial. Just one year later Chrysler ranks the fourth largest U.S. automaker.
Another year later, in 1928, Chrysler expands by taking over the five times larger Dodge
Brothers, Inc., which was notorious for its commercial trucks. That year Chryslers automobiles
score two wins, taking third and fourth place at the race Le Mans. More and more in demand
Chrysler sells 160,670 vehicles and establishes a record high in productions that cant be beat
until 1950.
Having a total of four auto models, one 4- and three 6-cylinder cars in production,
Chrysler is now one of Americas largest automaker, playing the field against Ford and GM.

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Continuing with astonishing success, Chrysler Co. comes forth with more revolutionary
technology inventions build into cars, allowing sales of the company to increase in midst of the
world economic crisis in 1933. Two years later Walter Chrysler steps down as president of
Chrysler Corp. and appoints K.T. Keller as his successor.
Keller left General Motors nine years earlier to join the Chrysler team. While Walter
Chrysler remains chairman of the corporation the company expends further over the border to
Mexico in 1938. At the young age of 65, Walter Chrysler passes away in August of 1940. Two
years later Chrysler Corp. stopped its production of automobiles for the public to take on
defends contacts for war production. It produced half a million Dodge trucks and over 25,000
Sherman and Pershing tanks for the U.S. military. During World War II. Chrysler designed 2,500
hp hemi-engines for airplanes, and his engineers redesigned the militarys SCR-584 radar
system antenna. More than 1,500 of these antennas where build in the Dodge plant.
Post World War II. America brought the best German scientist and engineers into the
country under Project Paperclip. Chrysler teamed up with some of these scientists and
engineers to do research and missile development for the government. Its missile division was
set up in Huntsville for Redstone prime contractor, operating from 1958 to 1964. The missiles
that were developed by Chrysler and the engineers were the first to test launch a nuclear
weapon in the South Pacific. Other missiles were developed to launch monkeys into space. This
was the first time such mission has been accomplished by America.
With help of all the Chryslers engineered new developments NASA started to use their
products. Many of Chryslers accomplishments were used in space launches and played certain
roles in the Apollo program. Between 1961 and 1975, all of the equipment which Chrysler had
helped to develop for space missions never had a mishap. All missions were successful without
any equipment failures.

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Chrysler continued to support research and development projects for U.S. government.
It allowed the company to grow and strengthen its political relationship. This close tie between
Chrysler and the government become a tremendous help after the oil-crisis in 1973, when the
rising oil prices caused Chrysler consumers to rethink their fuel use. The Arab-Israeli War began
the oil crisis of 1973. The United States decided to re-supply the Israel military; therefore, an
embargo against the United States was imposed by Arab members of the Organization of
Petroleum Exporting Countries (OPEC). The embargo banned petroleum exports to certain
countries and decided on cuts regarding oil production: it also affected many other countries in
addition to the US (Milestones, 2013).
Because the U.S was so dependent on foreign oil, this embargo imposed a huge strain
on the U.S. economy. It caused a massive increase in oil prices; the price of a barrel of oil
eventually quadrupled thus creating sky high gasoline prices for consumers (Milestones, 2013).
This crisis was contributing factor to the recession of 1973-1975. Both the recession and the oil
crisis affected automotive sales. Chrysler was not able to compete with the Japanese smaller
and much more fuel efficient cars. Author of Riding the Roller Coaster: A History of the Chrysler
Corporation, Professor Charles Hyde believes Chrysler was not able to withstand the current
economy because they specialized in larger, less fuel efficient cars (Examining Chrysler's 1979
Rescue, 2008). Oil prices kept climbing with concerning speed, continually decreasing the
demand for Chryslers once so popular muscle cars.
Chrysler hired Lee A. Iacocca, making him president and chairman, when the company
was at the verge of bankruptcy. Facing a second oil crisis in 1979, Iacocca decided to appeal to
U.S. Congress to ask for a $1.5 billion loan guarantee. The debate was strong about loaning
money to Chrysler. According to an article by Kathy Gill, Supporters of providing aid to Chrysler
argued that The U.S could not afford the failure of a company that was in the top 10 in
manufacturing(Gill, n.d.).

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Considering Chryslers history of supporting the government on research and

manufacturing projects, and more so considering Chrysler being one of the big three in the
automotive industry, the government took a close look at the numbers of American jobs that
were about to be lost. Congress approved and President Carter signed Chrysler Corp. Loan
Guarantee Act in 1980. Chrysler Corporation had to drastically reduced wages and cut back on
internal cost. Iacocca transformed Chrysler anew. Both Union and management cooperated
successfully with Iacocca and cut the companys cost. Only three years later, Chrysler was able to
repay the loan and the $ 350 million in interest well before its due date.
Chrysler was finally more stable and introduced its first minivans, the Dodge Caravan and
Plymouth Voyager. The company was marketing to consumers with families. This strategy turned
things around for Chrysler. The minivan become sales leader for the next 25 years. In 1987 the
corporation bought the Italian company, Nuova Automobili F. Lamborghini and American Motors
Corporation. Lamborghini made luxury vehicles while AMC was the maker of the Jeep. One of its
most bought SUVs was Jeep Cherokee.
In 1992 Robert J. Eaton took Iacoccas position as a president of the company and merged
Chrysler Corporation with German Daimler-Benz AG six years later to become stronger in the global
market. Daimler-Benz AG attained Chrysler Corporation for more than $35 billion in a stock swap.
Shareholders approved the deal and DaimlerChrysler AG began trading on the NYSE. Chrysler
Group remained profitable due to strong sales for its new models like the Dodge Magnum. In 2006
Chrysler reported $1.5 billion in losses and Daimler sold Chrysler Group to the U.S. private equity
firm Cerberus Capital Management a year later. Chrysler Group became Chrysler LLC.
New chairman and CEO Robert Nardelli was elected. Chrysler experienced another hit

during the subprime mortgage crisis. Customers had a hard time borrowing money to purchase
cars. The very tight market for consumer credit had a negative impact on automotive industries
and helped spark the automotive industry crisis of 2008- 2010. Automotive sales were down
37% and the Big Three, GM, Chrysler, and Ford, were hit hard (Armadeo, n.d.).

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Between the years of 2003 and 2014 Chrysler has given over $240,000 as political
contributions. The majority of these contributions were to organizations that were not affiliated
with democrats or republicans. The rest split even between the democratic and republican party.
This was for financing campaigns. This was only pocket change compared to $24.5 billion
dollars Chrysler spend on lobbying. The automotive industry contributed 3.6% to the U.S.
economy; after the decrease in automotive sales the automotive industrys economic output was
reduced by 1% (Armadeo, n.d.). April of 2006 was a high peak for the automotive industry, it
employed 1.091 workers; however, by June of 2009 that number decreased by 43% to 624,000
workers (Armadeo, n.d.).
After surviving through the aid of government loans Chrysler filed for Chapter 11
bankruptcy in 2009 and decided to close multiple plants until getting out of bankruptcy (Satow,
2009). In 2009, Fiat assisted in getting Chrysler out of bankruptcy and gain 20% stake in the
company (A New Start, 2014). Eventually, Fiat bought more shares and earlier this year bought
out the 41.76% from the United Auto Workers' employee medical benefit retirement trust (VEBA)
(Healy, 2014). Chrysler and Fiat created a new holding company called Fiat Chrysler Automobiles
or short FCA. The company now operating from a global wide platform launched a redesigned
Chrysler 200 in January of this year.

Chryslers current Chief Financial Officer is Richard Palmer. He was elected to the
position in 2011. Prior to this position he was Chief Financial Officer at Fiat Group, IVECO
Trucks Australia limited, and Camau. Palmer was appointed to handle the acquisition of
Chrysler by FIAT group and eventually exceled in the role of Chief Financial Officer
(Seetharaman, 2012). In the first quarter 2014 Chrysler reported a net loss of $690 million. A
result of costs associated with its completed merger with Fiat. Their reported financials identify a
$504 million hit on eliminating debt on a prepayment for a United Auto Workers retiree trust
note. It was a $672 million commitment that allowed Fiat to purchase the UAWs remaining
shares in Chrysler. Net income was $486 million.

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Chryslers U.S. sales were up 11% in the last 3 months. Its U.S. market share moved up
to 12.7 % from a year earlier 1.1%. During an analyst conference call Chrysler CFO Richard
Palmer confirming Chryslers guidance for the year which called for $80 billion in revenue and
2.4 billion in profits. A year earlier Chrysler posted a net profit of $166 mil. Modified Operating
Profit grew 35% to $586 million up from $435 million a year earlier. The net revenue for the first
quarter 2014 was $19 billion a 23% increase from 2013 (Snavely, 2014). Chryslers first-quarter
performance was aided by the introduction of the Jeep Cherokee. Globally Chrysler sold 10%
more automobiles than they did last year. With Chryslers financial leader Richard Palmer at the
helm, it is positioning itself to reclaim a hold of its position in the automobile industry and
completing its social responsibility to the unions representing their workers.

References:

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

Amadeo, K. (n.d.). The Auto Industry Bailout: Why, How and What It Means for You. About.com
US Economy. Retrieved June 9, 2014, from http://useconomy.about.com/od/criticalssues
A new start for the new year. (2014, January 2). The Economist. Retrieved June 9, 2014, from
http://www.economist.com/blogs/schumpeter/2014/01/fiat-last-buys-chrysler
Chrysler History. (n.d.). Chrysler History. Retrieved June 9, 2014, from
http://www.chrysler.com/en/this-is-chrysler/history/
Examining Chrysler's 1979 Rescue. (2008, November 12). NPR. Retrieved June 9, 2014, from
http://www.npr.org/templates/story/story.php?storyId=96922222
Healey, J. (2014, January 21). Done deal: Fiat owns Chrysler. USA Today. Retrieved June 9,
2014, from http://www.usatoday.com/story/money/cars/driveon/2014/01/21/done-deal-fiat-nowowns-all-of-chrysler/4718529/
Milestones- 1969- 1976 . (2013, October 31). Office of the Historian. Retrieved June 8, 2014,
from http://history.state.gov/milestones/1969-1976/oil-embargo
Satow, J. (2009, April 30). Chrysler succumbs to bankruptcy after struggle. The Huffington Post.
Retrieved June 9, 2014, from http://www.huffingtonpost.com/2009/04/30/chrysler-bankruptcywhat-_n_193528.html
Seetharaman, D. (2012, March 8). Chrysler CEO declines 2011 pay; company now worth $7.5
billion. Reuters. Retrieved May 9, 2014, from http://www.reuters.com/article/2012/03/08/uschrysler-ceo-idUSBRE82701L20120308
Snavely, B. (2014, May 12). Chrysler loses $690 million in 1Q after paying UAW health care
trust. Detroit Free Press. Retrieved May 12, 2014, from
http://www.freep.com/article/20140512/BUSINESS0103/305120111/Chrysler-earnings
Chrysler Corporation. (n.d.). Chrysler Corporation. Retrieved June 2, 2014, from http://www.u-shistory.com/pages/h1810.html
Clark, S. (2010, August 6). Bailed Out Firms Spend Millions on Political Causes, Federal
Lobbying. Fox News. Retrieved June 2, 2014, from

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

10

http://www.foxnews.com/politics/2010/08/06/bailed-firms-spend-millions-political-causes-federallobbying/
Gill, K. (n.d.). Political History: The Chrysler Bail Out. About.com US Politics. Retrieved June 2,
2014, from http://uspolitics.about.com/od/economy/a/chryslerBailout.htm
Influence Explorer. (n.d.). Chrysler Group. Retrieved June 3, 2014, from
http://influenceexplorer.com/organization/chrysler-group/c23457a1afef4fdcae8a1dfc9b063426
http://abcnews.go.com/blogs/business/2014/05/nissan-and-chrysler-lead-auto-sales-surge/
http://www.autoblog.com/chrysler/
http://savannahnow.com/exchange/2009-07-04/chrysler-products-struggle-sales#.U4ZEBfldVSo
http://forum.mmajunkie.com/forum/threads/chrysler-succumbs-to-bankruptcy-afterstruggle.13079/
http://www.semissourian.com/story/1535559.html
http://www.bloomberg.com/news/2013-01-22/marchionne-s-dart-letdown-shows-chrysler-stilllacks-cars.html
http://www.bloomberg.com/news/2012-07-31/marchionne-s-chrysler-stars-in-fiat-s-struggle-forprofit.html
http://www.freep.com/article/20140129/BUSINESS0103/301290068/Chrysler-Fiat-Marchionneearnings-net-income
http://www.cnbc.com/id/100939485
http://news.google.com/newspapers?
nid=110&dat=19810110&id=X0ZOAAAAIBAJ&sjid=rksDAAAAIBAJ&pg=1939,594986
http://www.huffingtonpost.com/2009/04/30/chrysler-bankruptcy-what-_n_193528.html
http://web.bryant.edu/~ehu/h364proj/fall_97/lushing/Chrysler1.html
http://chryslerhistory.com/
http://www.allpar.com/history/
http://money.cnn.com/2013/05/02/autos/chrysler-fiat-finances.fortune/

CHRYSLER: FROM HIGH TO LOW, DRIVING ON A ROCKY ROAD

11

http://www.britannica.com/EBchecked/topic/1360859/Chrysler
http://media.chrysler.com/newsrelease.do;jsessionid=D0C81AE2138531425ABCB124CA3BF42
7?&id=2210&mid=175
http://online.wsj.com/news/articles/SB124109550079373043
http://www.chryslergroupllc.com/Investor/PressReleases/sales/Pages/default.aspx
http://www.nytimes.com/2009/05/01/business/01history.html
http://www.youtube.com/watch?v=IRtvpMPLQ8o
http://www.economist.com/blogs/schumpeter/2014/05/fiat-chryslers-new-strategy