Bailout of Chrysler
A series of disastrous ownership changes, beginning with their acquisition by Daimler-Benz in 1998 and followed by an unsuccessful attempt to reverse their fortunes through their purchase by Cerberus Capital Management in 2007 had put Chrysler in a difficult position. By 2008, their share of the American car market had dropped by more than a third when compared to 2007 numbers. Combined with the 2008 global recession and credit crisis, Chrysler soon found themselves unable to sustain operations on their current cash flow. They appealed to the United States government and were granted a 4 billion dollar emergency bailout loan by President Bush through the TARP fund. Under President Obama, they asked for an additional 5 billion dollars in order to fund their ongoing reorganization.
The Obama administration was unwilling to commit to an increase in bailout funds without at first seeing a concrete plan in place for Chrysler’s future. This led Chrysler to seek out potential suitors interested in purchasing their assets. In January of 2009, the company announced that they had begun negotiations with Fiat in order to sell a significant stake to the Italian organization.
Bankruptcy and Reorganization of Chrysler
Chrysler was able to come to an agreement with the UAW at the end of April, 2009, which was one of the pre-purchase conditions put into place by Fiat. On April 30, the company simultaneously announced that they were seeking Chapter 11 bankruptcy protection as well as a formal partnership with Fiat.
On June 10, 2009 Chrysler emerged from bankruptcy as Chrysler Group LLC. The United States government partially financed the restructuring agreement to the tune of 6.6 billion dollars. The new company is owned by Fiat (20% stake), the Canadian and American governments (2.46 percent and 9.85 percent respectively) and the UAW (67.69 percent). The reorganization has been structured so that Fiat can attain a higher stake in the new Chrysler at the expense of the UAW reducing their own ownership level if certain performance conditions are met.
Chrysler was forced to close 22 factories in 2009 in order to reduce their liabilities and operating costs. 789 dealerships were also closed. Further plant closings and employee layoffs are planned throughout the year.
Chrysler's History
Acquisition of Chrysler by Cerberus Capital Management
On May 14, 2007, DaimlerChrysler sold 80.1% of the Chrysler Group to Cerberus Capital Management whom together formed Chrysler LLC. The sale price was reported to be $7.4 billion, which is a shadow of the $38 billion Daimler-Benz paid in 1998 to acquire Chrysler in a "merger of equals." In August 2007, Cerberus named Robert Nardelli as the new chief of Chrysler.
After the merger, the company changed its name to DaimlerChrysler to reflect the new partnership. As many industry pundits speculated, the Chrysler Group suffered under the shadow of new sister brands such as Mercedes-Benz and few vehicles managed to bridge the gap between Daimler and Chrysler. Those vehicles that have include the Chrysler Crossfire and the Chrysler Pacifica. Both well regarded both critically and by the public.
The speculation now resides on the future of the individual Chrysler brands: Jeep, Chrysler and Dodge. Chief Executive Tom LaSorda has been quoted as saying, "These brands will not be broken up under any circumstances," in the days after the sale was announced. However, the Jeep brand is often singled out as a possible sale target. Even though the Jeep brand has been diluted recently with the introduction of car-like offerings such as the Jeep Patriot and the Jeep Compass, the Jeep division retains a strong stand-alone value.
Chrysler Shared Platforms
Chrysler group dealerships were plagued by a lack of differentiation between brands. In the mid- to late-1990s, Dodge, Plymouth, and Chrysler each sold essentially the same vehicle with a different logo on the hood. These cars were known in as the "Cloud Cars" and included the Dodge Stratus, Chrysler Cirrus and the Plymouth Breeze.
This strategy contributed to the demise of the Plymouth brand in 2001 and hurt sales across the entire range. By the time Plymouth came to the end only the Prowler, which had received high marks for design and inspiration but was found to be lackluster on the street, was unique to the Plymouth line. Only the Jeep brand was spared from debilitating badge engineering practices.
The Company's Origins
The Chrysler company was created by Walter P. Chrysler in 1925. The first Chrysler was a product of the Maxwell Motor Company released in 1924. In 1923, the company had phased out its Chalmers line of automobiles to make room for the powerful, inexpensive 6-cylinder Chrysler. The car was a success, and the Maxwell Motor Company was restructured into Chrysler and the Maxwell brand was dropped the same year.
The Chrysler Corporation would go on to introduce or acquire a variety of well-known brands with Plymouth at the entry level and the Chrysler brand itself at the top. Passenger car and trucks brands found in between included the DeSoto, Dodge, Valiant (absorbed by Plymouth), Eagle, and Jeep amongst others.
The company would narrowly avoid bankruptcy in 1980 thanks to financial assistance in the form of a 1.5 billion dollar loan from the U.S. government, a loan which was fully repaid within 3 years. In 1998, the company was acquired by Daimler-Benz, causing it to be renamed DaimlerChrysler Motors Company LLC. After suffering financially, despite the success of several newly introduced vehicle models, Chrysler phased out the Plymouth brand and ended their long partnership with Mitsubishi. In 2007, the Chrysler Group of brands was sold to Cerberus Capital Management for the price of 7.4 billion dollars. The company would again be reorganized following its bankruptcy in 2009.
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