Chrysler reaches new low after a very rough ride

DETROIT Fri May 1, 2009 7:02am EDT

1 of 3. Salesman Rick Schultz looks out from the showroom at Clark Chrysler Jeep Dodge dealership in Methuen, Massachusetts April 30, 2009.

Credit: Reuters/Brian Snyder

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DETROIT (Reuters) - Once an icon of American automotive might, Chrysler has reached a new low in its rocky eight-decade history by filing for bankruptcy and cutting its business to a shadow of its former size.

"Chrysler has flirted with bankruptcy on and off since 1954," said automotive historian Bob Elton. "It's been a wild ride between very prosperous periods and serious disasters."

"They have finally qualified as a real failure," he added.

Weighed down by a cost structure that made it uncompetitive against Asian rivals, two years of crumbling auto sales and the credit crisis, Chrysler filed for Chapter 11 bankruptcy protection on Thursday and announced an alliance with Italian automaker Fiat SpA (FIA.MI) after debt restructuring talks broke down.

That alliance raises a key question: can Chrysler rise Phoenix-like from the ashes when it emerges on the other side of bankruptcy and resurrect a brand once synonymous with American craftsmanship? Or is it too late?

Few industry experts seem to rate the company's chances of longer-term survival highly.

"Chrysler is a company that has been failing for the last 35 years," said University of Michigan Professor Gerald Meyers, a former chairman of American Motors Corp which was acquired by Chrysler in 1987. "There is no economic justification for the existence of the Chrysler Corporation."

Chrysler saw its U.S. market share shrink to 11 percent in 2008 from 13.3 percent in 2002, according to industry tracking firm Edmunds.com. Since February 2007 the firm has announced 22,000 factory job cuts. It now has around 26,800 unionized workers.

The marriage with Fiat also raises the ghost of the Italian automaker's own poor track record in the United States and what that portends for its chances of helping Chrysler to win over American consumers.

CHECKERED HISTORY

Walter P. Chrysler, a onetime vice president of General Motors Corp (GM.N), formed Chrysler Corp in 1925 out of an amalgamation of other automakers whose origins stretched back to the beginning of the 20th century.

Chrysler quickly became a major power on the U.S. automotive scene, purchasing car and truck maker Dodge Brothers in 1928. It was after that acquisition that the term "The Big Three," was first coined in an editorial in The Automotive Daily News because GM, Ford Motor Co (F.N) and Chrysler controlled 75 percent of U.S. auto sales between them.

Chrysler survived the Great Depression with well-made, low-cost cars. Its Plymouth, DeSoto and Dodge brands became household names symbolizing American engineering prowess.

"People forget that in the 1920s and 1930s Chrysler was regarded as an engineering powerhouse," said automotive historian Bill Vance.

Like the other automakers, Chrysler turned to military production during World War Two -- Detroit was dubbed the "Arsenal of Democracy" -- cementing its iconic status. Chrysler's Jeep was originally a military vehicle.

But from the late 1940s to the present day, Chrysler has swung between boom and bust.

Historian Elton counts seven near collapses for the company since 1954, punctuated by soaring successes including Chrysler's turnaround under Lee Iacocca in the 1980s -- making Iacocca one of America's first celebrity executives, who was even touted at one stage as a potential presidential candidate.

"Chrysler has always tried anything and everything at once," Elton said. "They shoot for the stars. When they get it right they hit the big time. When they miss, it's ugly."

But an unsuccessful union with Daimler AG (DAIGn.DE) -- which bought Chrysler in 1998 and lost billions on the deal -- ended with a sale to private equity group Cerberus Capital Management LP CBS.UL in 2007, which led to the latest and biggest failure.

FIX IT AGAIN, SERGIO

U.S. President Barack Obama summed up the irony of Chrysler's position on Thursday when he said the automaker has been a "pillar of our industrial economy, but, frankly, a pillar that's been weakened by papering over tough problems and avoiding hard choices."

The marriage with Fiat is intended to revive Chrysler's fortunes, bringing the Italian car maker's small-car expertise to boost the American company's truck-heavy lineup.

Fiat is due to eventually own 35 percent of Chrysler under the restructuring plan.

Edmunds.com CEO Jeremy Anwyl said an alliance with Fiat could potentially be more fruitful than Chrysler's clash of cultures with Daimler -- and could be successful like the alliance between Renault (RENA.PA) and Nissan (7201.T) has been under CEO Carlos Ghosn.

"This is a very different situation," Anwyl said. "It's clear from the get-go that Fiat is in charge and that this will be a much leaner, more efficient company."

But most observers say Fiat's arrival comes too late to save Chrysler after years of lackluster models that haven't appealed enough to the American consumer.

"Fiat can keep a piece of it alive longer, and then if Fiat is very successful maybe they can get some more traction," Meyers said. "But Chrysler as we know it is a dead duck."

Others refer to Fiat's awful track record in the United States in the 1970s and 1980s, which led to an ignominious retreat from the market. Fiat's cars became the butt of jokes, including that Fiat stood for "Fix It Again Tony."

Whether its cars are good or bad, that is the rap that Fiat must overcome, historian Vance said.

"It's hard to win back customers when you've lost them. It takes years," he said. "Still, I'd like them to do well."

"It would be tragic to see a once-respected icon like Chrysler go down," he added.

(Reporting by Nick Carey; Additional reporting by David Bailey; Editing by Martin Howell, Richard Chang)

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