March 6, 2021

Common Sense: Salvation at Chrysler, in the Form of Fiat

A little more than two years ago, the White House’s auto industry task force concluded flatly that Chrysler was “not viable as a stand-alone company.”

That may have been an understatement. America’s third-largest automaker was too dependent on gas-guzzling trucks and S.U.V.’s, too concentrated in recession-wracked North America, too small to compete globally and too cash-starved to invest in new technologies. Quality was abysmal. Every model in the company’s Chrysler, Dodge and Jeep brands ranked in the bottom 25 percent in the J. D. Power Associates survey of customer satisfaction. From 2006-8, Chrysler lost $30 billion.

David Kelleher, 44, president of David Dodge Chrysler Jeep in Glen Mills, Pa., thought Chrysler — and his dealership — were “close to death.” After graduating from the University of Pennsylvania and forgoing law school to sell cars, Mr. Kelleher had worked his way through the ranks at a Chrysler Plymouth dealership in the Philadelphia area before buying his own franchise and opening David’s in 2005. Chrysler was already in steep decline under its German owner, Daimler-Benz, which in turn sold the company to the private equity concern Cerberus Capital Management in 2007.

“We were lucky to survive those barracudas,” Mr. Kelleher recalled. “They were systematically devaluing the company. They just wanted to squeeze money out of it.”

As for quality, he mentioned the midsize Sebring. “That was a flagship piece of junk. I buried it on the back lot. I sold maybe one a month, if that.” When Chrysler’s owners on Wall Street demanded higher sales numbers, Mr. Kelleher and his fellow dealers responded with steep discounts and lower credit standards. “We were just trying to get the numbers up and we built a bubble,” he said. When gas prices soared above $4 a gallon in 2008, he pleaded with Cerberus officials for models with better gas mileage, long a sore spot for Chrysler. “They looked at me like I was speaking French.”

After President Bush bailed out General Motors and Chrysler in his administration’s waning days, there was sentiment inside the Obama White House and among some in Congress to sell off Jeep and a few other valuable Chrysler assets, possibly to G.M., and cut the government’s losses by liquidating the rest. Dealers like Mr. Kelleher would be reduced to selling used cars and surviving on repairs to defunct models.

He recalled meeting at the Capitol with Arlen Specter, then the Republican senator from Pennsylvania. “David, why would I save this company?” he recalled Senator Specter asking. “It makes bad cars. It’s destined to fail.” Mr. Kelleher said he replied: “I’m going to be bankrupt in a matter of weeks. I can’t support my debt service selling used cars. Millions of jobs are going to be lost.” By the end of the meeting, Mr. Specter seemed to be reconsidering. “If I vote for this, my party is going to turn against me,” he said to Mr. Kelleher. “I hope you remember this.” (Mr. Specter said he didn’t remember the conversation, but “it sounds like one of many that I had with constituents where I voted on what was good public policy even though it was politically risky because the Republican Party didn’t like it.”) Mr. Specter was one of only two Republican senators to support the auto bailout. He subsequently switched parties and was defeated in the Democratic primary.

Not even Mr. Kelleher could be sure the proposed rescue plan — a government-backed partnership with Fiat of Italy in which Fiat would pay no money for a controlling stake and an option to buy more — would work. If a vaunted carmaker like Mercedes-Benz couldn’t save Chrysler, who could?

In what surely ranks as one of the most remarkable turnarounds in the annals of American business history, this week Chrysler reported adjusted net income of $181 million and a 30 percent rise in revenue, to $13.7 billion, even in a still-soft global car market. Its June sales jumped 30 percent from the previous year, its 15th consecutive month of increases. Its market share has grown to 10.6 percent, from under 6 percent. Chrysler repaid its outstanding government loans in May, six years ahead of schedule, and last week Fiat paid $500 million for the Treasury’s remaining 6 percent stake in the company. The American government has recouped $11.2 billion of its $12.5 billion investment in Chrysler, and would probably have made a profit had it held the debt to maturity. Meanwhile, Chrysler employs 56,000 people and has added 9,000 jobs since the bailout.

“This is an amazing success story,” the assistant secretary of the Treasury, Timothy Massad, told me this week. “We’ve fully exited Chrysler at a very small loss. When you look at the options we had, they were very stark: provide assistance or face the immediate liquidation of the company. That would have been disastrous in the context of the worst financial crisis since the Great Depression.”

How did Fiat do it after so many had failed? Mr. Kelleher said the first months were frightening. Fiat and Chrysler’s chief executive, Sergio Marchionne, “stopped the rebates, stopped the bad loans. We felt the change immediately.” Chrysler’s market share plunged. But Mr. Kelleher said he felt better after he met the new chief executive at Mr. Marchionne’s first dealer meeting in Orlando, Fla., in early 2010. A native of Abruzzo, Italy, whose family moved to Canada when he was 14, Mr. Marchionne speaks fluent English and Italian. “He has a presence. He looks like a kindly grandfather, but he has a grip that will take your hand off,” Mr. Kelleher said.

Article source: http://feeds.nytimes.com/click.phdo?i=4443407736f1973b55c313bc328b3330

Speak Your Mind