Chrysler makes a comeback, again

By Paul Ingrassia
May 26, 2011

By Paul Ingrassia
The opinions expressed are his own.

History repeated itself this week, more or less. Back in 1983 Chrysler, recovering from virtual bankruptcy three years earlier, paid off $1.2 billion in government-guaranteed loans seven years before they were due. On Tuesday Chrysler, recovering from actual bankruptcy in 2009, repaid $7.6 billion in loans made directly by the U.S. government six years before the due date. Chrysler refinanced its debt with private money.

Who would have thought two years ago that Chrysler would survive longer than, say, Charlie Sheen on the airwaves or Osama bin Laden on the lam? American and Canadian taxpayers might not ever recover their full investment in Chrysler because the value of the stock that they bought in the company, and still own, remains uncertain. But the bailouts of Chrysler and General Motors helped prevent the Great Recession from becoming Great Depression II, and stand as President Barack Obama’s only outright domestic-policy success to date.

The auto bailout also could serve as a template for addressing the budget deficit and entitlement reform, the current pressing issues in Washington. In rescuing Chrysler and GM, the Obama administration spread pain among workers, dealers, managers, shareholders, bondholders and the taxpayers. It was shared sacrifice, not entirely voluntary, but it worked.

The question for Chrysler now is whether history will continue to repeat itself. Months after the 1983 loan repayment, the company launched its revolutionary new minivan, prompting Car and Driver magazine to stray from its mission of reviewing cars and recommend buying the company’s stock. That turned out to be better investment advice than most people got from their brokers.

The minivan’s success sent Chrysler’s stock soaring more than 20-fold, highlighting a recovery under Lee Iacocca that became one of the most compelling corporate comebacks in history. Can Sergio Marchionne, the CEO of both Chrysler and Fiat, which now owns 46% of Chrysler, turn the company’s current survival saga into anything approaching that degree of success?

The odds certainly are against Marchionne. Transatlantic automotive mergers have a terrible track record. Chrysler’s 1998 to 2007 decade of disaster under Germany’s Daimler is Exhibit A. Moreover, the global auto industry is far more competitive than it was in the 1980s. On Tuesday, the same day Chrysler repaid its government loans, Volkswagen opened the newest auto assembly plant in the U.S., joining BMW, Daimler, Toyota, Honda, Nissan, Hyundai, Mazda and others.The quality of Chrysler’s cars, measured by Consumer Reports and J.D. Power, remains well below average. And for all its recent progress, Chrysler is still just breaking even.

But none of those problems is insurmountable. People have been underestimating Marchionne for years, and it has always been a bad bet. He rescued Fiat from the brink of bankruptcy less than a decade ago. In 2009 most experts believed Chrysler would be dead by now, but Marchionne has proved them wrong. Maybe he can’t forge a comeback that equals Chrysler’s epic of the Eighties, but Chrysler might have a bright future as the American arm of Fiat.

The Fiat-Chrysler tie-up has far more industrial logic than DaimlerChrysler ever did. Fiat and Chrysler both serve middle-market customers: Fiat mostly with small cars, Chrysler mostly with SUVs and trucks. This makes parts and purchasing far more interchangeable between the two companies than it was between Chrysler and Daimler, where the appearance of even a Mercedes door handle on a Dodge car was reason for high Teutonic angst.

As for competitive position, Jeep and Dodge trucks remain strong franchises with global potential in fast-growing emerging markets as well as in more developed nations. Meanwhile, Fiat’s expertise in fuel-efficient cars and engines should serve Chrysler very well on its home turf of North America, where $4-a-gallon gas has left the company vulnerable to its excessive dependence on trucks. Meanwhile, the earthquake in Japan and its aftershocks have crimped car production at Toyota, Honda and Nissan, giving Chrysler and others more pricing leverage (as American car buyers are painfully discovering).

Chrysler’s quality woes, and its current lackluster product lineup, can be fixed with management focus and attention. A decade ago Ford’s quality ratings were disastrous, but today Consumer Reports puts them higher than Toyota’s. And if the spiffy new Fiat Cinquecento minicar, recently introduced in America, provides a glimpse of Chrysler’s future product direction, things are looking up indeed.

Marchionne has done everything right with Fiat and Chrysler so far, and has made the Obama administration’s decision to save Chrysler look prescient. He’s a chain-smoking workaholic, but he shows no sign of slowing. He has lots of work to do, but as this week’s early loan repayment has shown, he and Chrysler have come further than almost anybody expected.

Photo: Chrysler Group and Fiat CEO Sergio Marchionne addresses the media during a visit to the Chrysler Jefferson North assembly plant in Detroit, Michigan April 28, 2011. REUTERS/Rebecca Cook

3 comments

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Everyone loves Chrysler & their superior products. Sure a trim piece may not line up perfectly, but the engine & transmission will out last everything else in the market. Chryslers pentastar V6 is the worlds best, names so by Wards automotive. Also Chrysler has style & different products than anyone else. Millions of people love Chrysler, Dodge & Jeeps. Chrysler is back after Daimler tried their best to kill them! Chrysler is getting stronger everyday! Go Chrysler!!!!

Posted by antonio311 | Report as abusive

Germany’s recent promise to siphon billions toward their electric car industry ties two major technological components together from a country that has showed forward thinking combined with quality engineering. Remember, they, like Japan are already in the midst of building a comprehensive solar rooftop infrastructure….
Besides having no monthly electric bill to pay, their citizens will be using this same rooftop energy source for travel. Maybe they can make their new car payment with the money they save monthly from rooftop solar?? Talk about moving an economy forward… Have the solar printing presses started cranking up yet (do a search on solar ink) ? Who knows? One thing for sure, Chrysler will have America at the forefront of the technology race by building a quality affordable (hopefully with a swappable battery) electric car.

Posted by electric38 | Report as abusive

@justuhvoter, I for one am bored with the Obama jabs. As it turns out, the bailout of the American automotive companies was a good thing even if it wasn’t your idea. You know that even Mitt is now taking credit for the idea. Never fear, Glen Beck’s white board can find the sinister plans in everything that anyone you disagree with does.

Posted by JulsMan | Report as abusive