Chrysler’s near-death experience in 1980 had a salutary effect on the company’s culture. Headcount was slashed by over 50 percent. By necessity, the old ways of doing business were consigned to the crusher. “New Chrysler’s” execs, managers, marketers, designers, engineers, union workers and suppliers all had to work together to find creative ways of doing more with less. With Lee Iaccoca at the helm, it was a seminal moment in Chrysler’s history: an opportunity for the once great American car company to thoroughly reinvent itself.
Necessity was the mother of all platform sharing. Introduced in ’81, Chrysler’s “K” cars offered seemingly endless variations on the same mechanical theme: Plymouth Reliant, Dodge Aires, 400 and 600; Chrysler LeBaron, Town and Country and Executive; and on and on and on. By the time the K stopped being special, Chrysler had produced nearly 40 variants.
It worked. With lowered overheads, interchangeable parts and Iacocca’s salesmanship, Chrysler was soon back in black.
After paying back Uncle Sam, Chrysler’s accumulating cash cache began to take its toll, allowing the automaker to slip back into kicking back. Even worse, the money burned a hole in Lido’s pocket. A suicidal spending spree ensued.
Like other successful CEOs, Iaccoca coveted a Gulfstream jet. Unfortunately, he liked it so much he bought the company. In an ill-advised aping of GM’s purchase of Hughes and EDS, Chrysler decided to diversify. In 1987, Chrysler bought the floundering American Motors Corporation (AMC). Lido correctly saw AMC’s Jeep brand as the crown jewel. During the ensuing SUV boom, Jeep made Iaccoca into a genius.
The 1990 recession caught Chrysler flat-footed (once again). The company shot its cash wad on acquisitions instead of investing in competitive new cars and building a rainy day fund. Gulfstream was quickly jettisoned. Newly-installed President Bob Lutz refocused the company’s energies on new product development. Lido finally relented to the board’s increasingly adamant urgings to retire.
In the nineties, Chrysler experienced its final manic high. Having slashed the costs of new car development through the use of integrated development teams to 2.8 percent of revenue (GM: eight percent), a slew of new cars spewed forth: the Viper (’92), LH full sized sedans (’93), New Yorker/LHS (’94), compact Neon (’94), Ram pickups (’94), mid size Cirrus/Stratus (’95) and all-new mini-vans (’96).
By 1997, the new product barrage pushed Chrysler’s market share to 23 percent (well above GM’s current market share). Chrysler was hailed as the model for the American automobile industry’s incipient revival.
Affable, mild-mannered Chrysler Chairman Robert Eaton saw towering clouds on the horizon. In a 1997 speech, Eaton described a “perfect storm” involving global over-production. Eaton’s solution: sell Chrysler to Daimler and walk away with nearly $100m in his pocket.
In all likelihood, Eaton knew that Chrysler’s manic success was built on a weak foundation. In [what’s become] classic American style, Chrysler’s flood of hastily-spun new products was far from perfect. In an echo of Chrysler’s 1957 fiasco, quality problems were rife. Rubber-band transmissions, blown Neon head gaskets, ever-cheapening interiors and a general prioritization of flash over substance were the all-too prevalent ingredients of the “New, New Chrysler”. The “model for the revitalization of the US car industry” was not a robust formula with which to take on the Asians.
Rather than disappoint investors (and spoil his own stock options) by plowing profits and dividends into improving product quality, Eaton made it someone else’s problem. If Daimler had done its homework and checked the corporation’s medical records, they would have known that Chrysler crashes like clockwork every six to ten years. In fact, the acquisition by Daimler only accentuated Chrysler’s all-too-soon next crash, because of the clash of cultures and Eaton’s increasingly disengaged leadership (seller’s remorse or waiting to go play with his money?).
Daimler paid $38b just before the inevitable collapse, and sent Dr. Z to minister to the sickly patient. But the German executive administered the usual prescription of happy pills: slash costs, cheapen the goods and rush out some new product (Chrysler 300). The result was a classic dead cat bounce: a $1.7b dollar profit in 2005, followed by an endless sea of red ink.
The perfect storm that Eaton had tried to detour gathered strength. Instead of addressing Chrysler’s underlying pathology, the shot-gun wedding only exacerbated the disease. In every category, Chrysler was attacked by competitors, and its products were inevitably found wanting. No wonder Daimler practically paid Cerberus to take the ailing automaker off its hands.
“Doc” Nardelli tried desperately to find a pulse, hoping there was one more life left in the once proud company. All he got was a corpse with a signed organ donor card. And who better to know about transplants than the good Doctor Marchionne? He even looks like a shrink. Maybe a good round of talk therapy is all Chrysler ever needed.
Sad, sad, sad. Nice write-up yet again.
Hasn’t something notable been left out? I thought that Chrysler wound-up being bought by Daimler because A)Kirk Kerkorian wanted to buy Chrysler in a hostile takeover bid, and Eaton did the Daimler sale to counter him, and B)Daimler was eager to buy another car company because they were flush with cash and worried about being bought-up themselves by corporate raiders? I’m still looking for a copy of the book “Taken for a Ride: How Daimler Benz Drove Off With Chrysler”, which is the detailed account of this story.
I’ll also add that, in addition to Jeep, Chrysler got something potentially even more valuable in 1987 when they purchased AMC: Their R&D methodology. My understanding is that Chrysler’s R&D dept. before buying AMC was a mess. AMC had been used to doing more with less since pretty-much forever. I remember Chrysler proudly announcing how their engineering prowess allowed them to turn out the Viper and later vehicles in record time. A chunk of the credit should go to AMC.
After the buyout, Chrysler essentially scrapped its own engineering department and replaced it with AMC’s unit. For good reason. Nevermind the dreadful Alliance; the XJ was a remarkable product from a terminal company. The development on the ZJ Grand Cherokee was essentially finished in ’87…Chrysler delayed it so they could get new minivans in production. And the Eagle Premier formed the basis for the LH cars, which were developed in record time; Chrysler had planned to replace the Dynasty/New Yorker with another K variant before the AMC team came in.
Plus there’d really be no reason for Chrysler to exist without Jeep, anyway.
@BigOldChryslers: This is in no way trying to pose as a comprehensive history; it’s a Cliff Notes version. I provide the outline; you guys can add in the details 🙂
Sorry Paul, I didn’t meant to be overly critical. As I’m sure you know, there was a lot more going on between the time when Chrysler bought AMC from Renault, and when Daimler bought Chrysler. While my interest in Mopar vehicles newer than about 1971 is pretty low, I like to follow the story of the company’s tribulations (death throes?)
There was also a management tussle because, when Lee Iaccoca retired, he overlooked Bob Lutz for CEO and hired Bob Eaton as his successor, which ruffled some feathers. I’m surprised that Lutz stayed on after that, until the sale to Daimler.
I often wonder how the story would have played out if Bob Eaton had been receptive to Kerkorian’s takeover attempt.
Maybe a good round of talk therapy is all Chrysler ever needed.
Not the worst idea of heard. American car companies need to start planning for rainy days instead of looking for the next big thing and the next thing to blow money on.
nice article. i can’t for the life of me figure out why chrysler is still in business. i would be terrified to buy anything built by them. the funny thing is that i’ve actually started noticing some of their product again. on the jeep side, the new grand cherokee is definitely an improvement and the new liberty seems pretty close to what the cherokee used to be. i think the fold flat second row seats on the mini-vans are genius and i can’t believe nobody else has knocked it off. i actually like the journey, it’s about as close as you can get to a no-nonsense full sized wagon these days.
The only ChryFiat product I would buy is the Challenger, nothing else they make interests me.
You can thank Bob Eaton for all those blown headgaskets and bad transmissions in the ’90s…he was behind that short-sighted cost-cutting. No wonder he was so eager to sell the company.
I remember Lutz claiming that Chrysler was the lowest-cost manufacturer in the world at the time, or something like that. That’s dubious, but the company was really on the ball in the mid-’90s. A little more attention to quality control, and the company might have weathered the ’00s better than both Ford and GM as an independent. For awhile there, the onslaught of hot new products from Chrysler was like nothing I’ve seen from Detroit before or since.
Too bad. I’m really rooting for their success with Fiat. Daimler stripped them to the bone for their own profit resulting in the missteps of the last decade. But Fiat at least sounds like they’re trying to bring something positive to the American market with their combined resources. Maybe that means “Chrysler” will eventually go away, but if American workers and consumers benefit, that’s okay.
Cry Fix It Again Tony and let Sergios restyled Pandas loose. This will be fun to see if Fiat can do anything with the corpse other than feed pandas thru the dealer network.
Not sure where all the negativity about Gulfstream is coming from. It’s a very profitable company and one of the major economic players here in Savannah, GA (its HQ). Jobs at Gulfstream are highly coveted, and not many of said jobs were lost in the recession, which for Gulfstream was more like a case of the hiccups (no, I don’t work for them). If anything, Chrysler is guilty of poor timing.
OTOH, who knows what Gulfstream would be today after 20 more years of Chrysler management . . . .
Did Chrysler really have a 23% market share in 1997? That seems highly improbable. I don’t recall them rivaling GM or Ford, but that would have been nearly a third of the domestic total share of 71.3% in 1997. It is remarkable that so many people were still buying domestic cars so recently.Is the totals still over 50% today?
http://trade.gov/static/auto_reports_roadahead.pdf
I seem to remember people complaining that Daimler took moneys away from Chrysler to prop up the Daimler side of the equation, which is why the mid decade cars are so material- and feature- poor. Apparently Daimler was so keen to cut money out of the development of the replacements for the Cirrus and Stratus, that they farmed it out to Mitsubishi or their (Thai?) based associates. Which would explain some of the odd decisions to base the Sebring & Avenger (and the Caliber?) on the Mitsubishi Lancer platform and drivetrains, excepting the V6 motors. The 4 cyl motors were that cost-cutting mashup between Chrysler, Daimler, Mitsubishi and Hyundai (with the plant in Dundee, Michigan). The companies were all to share in the ‘world’ motor, but somehow Mitsubishi got cut out of the deal, and after carmageddon, Chrysler ended up with the plant. I may be a little fuzzy on some of the details, as I’m at the office and can’t take the time to research my memories…
As I recall, Daimler envisioned a “three-legged stool” approach to increase sales and lower development costs: MB in Europe, Chrysler in NA, and Mitsubishi in Asia (they bought a sizeable stake in the latter). Unfortunately for Daimler, both companies were the dogs of their regions, something they would’ve realized had they not been blinded by the profits from their own ’90s cost-cutting. Keep in mind this is the period where BMW bought the moribund Rover Group, Ford blew $6.45 billion on Volvo, and GM spent over $700 million for SAAB.
Chrysler got screwed by the short-sighted policies of a Schrempp-era Daimler, but there was little profit-wise to sap out of the company. Daimler’s real mistake was not holding ChryCo to any sort of benchmark and letting them slip behind the competition. MB had this problem as well, as the the miserable first-gen ML, the chintzy W220 S-Class, and two cycles of generic, ovoid E-classes show.
On that note, there is a fabulously corny (and expensive-looking) Daimler Chrysler commercial on YouTube.
Excellent summary.
What’s underplayed, though, is that the Chrysler team under Eaton/Lutz, had their finger on the pulse of the American market. The LH series made full-size sedans COOL again; the Neon was a dead-on bullseye hit. The third generation minivans also had a heavy layering of cool styling…not Corvette cool, but big-box cool.
Good drivers, too. I never drove an LH; but transmissions aside, I’d swear by the 1996-2008 minivans. Had three; two used and one new…good looking and better drivers. And incredibly useful.
Lido’s fatal flaw was in failing to put performance of his underlings, below blind loyalty. He knew the market but not so much what makes for successful design; and he couldn’t spot Eaton’s many flaws in his rush to stick it to Maximum Bob.
Oh, how different things would have been, had Iacocoa retired earlier and put Lutz in the chairman’s spot.
This probably says more about me than anything else, but I always felt sorry for Chrysler. It’s the Washington Generals of the American auto industry. When I think of Chrysler, I think of the Mopar nut that used to work at my daddy’s shop. His old Challenger (two-tone gold and brown) was the fastest thing in town…when it wasn’t throwing its fan through the hood.
I find the Fiat acquisition terribly interesting. Fiat knows how to do what Fiat does, yet it has never demonstrated an understanding of how do position what it does within the context of the American marketplace. Then again, American car-buying tastes more and more resemble what Fiat builds. Then AGAIN, it’s an Italian company within ZERO traction amongst American consumers buying an American company with ZERO traction with American consumers.
Whether it’s a success or failure, the Fiat period of Chrysler history will be spectacular…but isn’t that the problem with Chrysler in the first place? This is gonna be fun to watch.