The Chrysler Corporation has been down this treacherous road before, encountering a word that causes shivers to rise up the spines of many a wary soul: bankruptcy. History is about to repeat itself, and not for the better. Chrysler’s senior management is not planning to go the way of other beleaguered Big 3 members. Consider this anecdote: facing rising oil prices and an underdeveloped line of compact cars, late 1979 saw Chrysler tapping former Ford executive Lee Iacocca to extricate itself from the brink of the “B” word. A $1.5 billion petition for U.S. government-backed loan guarantees was drafted, but Iacocca’s ego wouldn’t stomach being saddled with massive amounts of debt for long. Under his watch, the military bought thousands of Dodge pickup trucks which entered military service as the commercial line M-880 Series. Its defense line was shored up to General Dynamics for $348.5 million. He prodded workers to meet the challenge head-on, and the ultra-profitable (and ultra-efficient) K-car and the minivan concept were born. Within 3 years, all loans were paid off and Chrysler was back in the black.
Fast forward to the last couple of years. Chrysler again is on the chopping block, this time due to yet another lack of response to the growing need for alternative energy vehicles and economical passenger cars, but primarily bolstered by their considerably higher wages (compared to their Japanese and European counterparts) due to their unionized workforces, including salaries, benefits, healthcare, and pensions. In return for labor peace, management granted concessions to its unions that resulted in them having uncompetitive cost structure and significant legacy costs. Now, in 2009, Chrysler is strapped for cash and in dire straits. Fiat may very well be its savior. Announcing a global alliance with Chrysler in January, Fiat planned to take a 35% stake (later revised to 20%) in Chrysler (with influence on top management structure) and gain access to its North American dealer network in exchange for providing Chrysler with the platform to build smaller, more fuel-efficient vehicles in the US and reciprocal access to Fiat’s global distribution network. A government imposed deadline to reach this deal was imposed for April 30 and Fiat stipulated the merger was contingent on Chrysler reaching an agreement with the UAW and the Canadian Auto Workers’ Union. This past Sunday, it appeared as if Chrysler had reached a deal with the unions which would meet federal requirements, though details were not made available. Chrysler said the union agreement “provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department.”
Nonetheless, today, Chrysler filed for chapter 11 protection in Manhattan, and forged ahead with its proposed Fiat alliance. Both the White House and Chrysler expressed hope for a “surgical” bankruptcy lasting 30 to 60 days, clearing the company’s liabilities and allowing it to emerge in healthy shape.
The point to keep in mind here is that this Chapter 11 protection was done in a legitimate, above board manner. It did not employ abusive tactics used by greedy lawyers and litigants employing underhanded motives such as forum shopping in our bankruptcy courts. Are you listening, Howard K. Stern?
We wish Chrysler the best in its attempt to again rise, Phoenix-like and begin a new chapter of providing the world with innovative and efficient modes of transportation.