DaimlerChrysler AG

1000 Chrysler Drive
Auburn Hills, Ml 48326-2766
(248) 576-5741

70546 Stuttgart
Germany
49 711 17 0
www.dalmlerchrysler.com

Chrysler has been part of American culture since automobiles were first introduced. For decades, it was the smallest of the "Big Three" U.S. automakers, trailing behind General Motors Corporation and Ford Motor Company (see entries). By the end of the 1970s, the company was in real trouble and made headlines when it had to ask for loans from the federal government to help get back on track. It took a CEO named Lee Iacocca to pull Chrysler out of the red and make it a more efficient and profitable company.

In 1998, Chrysler again shocked the business world when it merged with giant German auto manufacturer Daimler-Benz, producer of the Mercedes line of luxury cars. The new company became DaimlerChrysler AG, with headquarters in Stuttgart, Germany, and Auburn Hills, Michigan. As the new company entered the twenty-first century a reorganization of its U.S. operations was underway: employees were laid off, plants closed, and production decreased. Although the moves were drastic, they seemed to finally stabilize the company's financial position. In 2001, DaimlerChrysler reported sales of $136 billion and a net income of $590 million.

Beginning at Buick

The Chrysler Corporation was officially established in 1925 but its roots go back a decade earlier. In 1912, the founder of Chrysler, Walter Percy Chrysler (1875-1940), left a management job with the Great Western Railway in Chicago, Illinois, to become a production manager of General Motors's Buick division in Flint, Michigan. During his time at Buick, Chrysler made a name for himself as a top-notch manager, introducing efficient work methods and increasing production from twenty vehicles to over five hundred cars per day. He also worked alongside K. T. Keller, who would later play a major role at the Chrysler Corporation.

In 1916, Chrysler became president and general manager of the Buick division. With Chrysler at the helm, Buick soon became General Motor's biggest moneymaker. In 1919, Chrysler was promoted to vice president in charge of production at GM. His meteoric climb up the corporate ladder came to a halt, however, in 1920 when Chrysler resigned from the company because of differences with GM founder and chairman William C. Durant (1861-1947).

A few months after leaving GM, the manager who could work miracles was recruited to be executive vice president of Willys-Overland, an auto company that was near bankruptcy. Chrysler earned an annual salary of $1 million, which was unheard of at the time. In 1921, Chrysler came to the aid of another car company in distress, Maxwell-Chalmers. As chairman of Maxwell, Chrysler worked with several of the company's engineers to build what would become the first Chrysler automobile. In 1925, the Maxwell Company became the Chrysler Corporation. By the end of 1925, there were thirty-eight hundred Chrysler dealers in the United States. The company went international a year later when Chrysler Canada was established. That same year, Chrysler Corporation jumped from being the twenty-seventh largest auto manufacturer in the country to the fifth largest. In 1927, it leaped to fourth place.

Dodging the Depression

In 1928, Chrysler launched its Plymouth and DeSoto models, cars that were aimed at attracting customers who

wanted lower priced transportation. In addition, the company made a significant acquisition when it purchased Dodge Brothers, Inc., a company five times the size of Chrysler. Dodge, which had been in business since 1914, made the first large series cars with all-steel bodies. It also featured a popular line of commercial trucks. The purchase allowed Chrysler to become the third largest auto manufacturer in the country, behind General Motors and Ford.

By the 1930s, the United States was in the grips of the Great Depression, with millions of people losing jobs and companies going under. Chrysler, however, managed to survive. It was the only American automobile manufacturer to increase it sales figures during the harsh economic times. In 1935, Chrysler resigned as president of Chrysler Corporation but remained as chairman of its board of directors. K. T. Keller, who came to Chrysler in 1926 from General Motors, was named president.

In 1942, Chrysler, like GM and Ford, stopped all civilian production and turned its plants over to producing military goods for the U.S. effort during World War II (1939-45). Among other vehicles, the company produced five hundred thousand Dodge trucks for military use. Once the war ended, Chrysler went back to designing and producing automobiles. The first all-new Chrysler models for consumers were unveiled in 1949.

The 1950s brought a number of innovations to Chrysler automobiles, including the first fully transistorized radios in passenger cars, air conditioning, and the first cruise control. With the 1960s came new models and the retirement of others. In 1960, Chrysler introduced the Valiant, its first compact car. The following year, 1961, brought the death of the DeSoto. And in 1964, the company unveiled its first "muscle" car, the Plymouth Barracuda, just two weeks before Ford introduced its nearest rival, the Mustang.

Iacocca to the Rescue

Chrysler began the 1970s by entering into what seemed to be a profitable partnership with Mitsubishi Motors Corporation of Japan. The company imported sub-compact cars and trucks and sold them in the United States under the Dodge and Plymouth names. By the end of the decade, however, the company was on the verge of bankruptcy. The American public was not buying as many cars, and Chrysler was suffering from substantial financial losses and deteriorating credit ratings. The auto company had spent tens of millions of dollars to make its vehicles comply with stricter vehicle emission standards imposed by the federal government. This meant it had to redesign vehicles so they would not give off excessive amounts of pollutants that were harming the environment. In addition, many Chrysler vehicles were recalled for safety reasons, which meant that the company had to stop production on certain models that were

not considered safe. Chrysler also had to pay to fix cars that had already been purchased.

On November 2, 1978, Chrysler announced its worse quarterly loss ever: $159 million. That same day, the company's board of directors named Lee Iacocca president and chief operating officer (COO), with the understanding that he would become chief executive officer (CEO) by 1980. Iacocca was a longtime auto executive who had been fired from Ford Motor just two months before. His job was to rejuvenate the company and increase profitability. Iacocca did all that was asked of him and more. He ultimately helped create one of the biggest turnarounds of a major corporation in the history of the United States.

As soon as Iacocca took over at Chrysler, he began recruiting some of Ford's top executives, who later became known as Iacocca's "Gang of Ford." While Iacocca was busy recruiting, other Chrysler executives were in Washington, D.C., unsuccessfully pleading for federal aid. The company said it

needed $2 billion to fully meet the federal rules that had been imposed. The situation became desperate in 1979 and Chrysler began selling off its overseas subsidiaries. In May 1979, it closed an assembly line in Detroit, laying off five thousand workers.

In late 1979, Iacocca got involved in the political fight. In 1980, he persuaded Congress to pass, and President Jimmy Carter (1924-) to sign, a $1.5 billion loan guarantee package. This meant that if Chrysler could not pay back the loan in ten years, the federal government would have to pay it off. The company, however, not only paid off the federal loan, it did so seven years ahead of schedule. By then the United States had come out of a recession, an economic downturn, and American consumers were on a car buying spree. According to Doron P. Levin in his 1995 book, Behind the Wheel at Chrysler, "Car buying was strong, and overnight Iacocca was riding tall again." Iacocca remained with Chrysler until 1993 when he left the company and was replaced as CEO by chief operating officer Robert J. Eaton.

Making a Comeback

During the reign of Iacocca, Chrysler made a surprising comeback from the edge of extinction. It sold its defense division to General Dynamics, a large Virginia-based corporation that built ships, airplanes, military armament, and computer information systems. The sale allowed Chrysler to concentrate more on consumer vehicles. As a result, it introduced several new models that contributed to the company's turnaround. In 1981, Chrysler launched the popular K-series of cars. The company also introduced an entirely new type of vehicle in 1984 when it rolled out the Dodge Caravan and Plymouth Voyager. The new "minivans" proved to be extremely popular with families, and helped spark the minivan craze of the late 1980s and 1990s.

In 1985, Chrysler and Mitsubishi Motors Corporation established a joint company, Diamond-Star Motors, to produce small cars, which American buyers were clamoring for because they were economical to drive. (Chrysler withdrew from the venture in 1991.) Two years later, Chrysler, now the number-three U.S. automaker, paid $800 million to acquire the number-four U.S. automaker, American Motors Corporation (AMC). The purchase included AMC's Jeep division. The company closed the decade with a massive reorganization program that included $1 billion in cost-cutting measures.

In 1994, Chrysler posted its highest ever net earnings of $3.7 billion on total sales of $52.2 billion. And by 1998, the company was a dynamic and profitable entity that had cornered the minivan market and almost single-handedly launched the sport utility vehicle (SUV) craze, with its Jeep Grand Cherokee. It also had a line of well designed midsize cars and a high profit-per-vehicle ratio.

Chrysler's success drew the attention of Germany's Daimler-Benz executives, who had conquered the respected, but limited, luxury-sedan market. In contrast to the German company, Chrysler had almost no international presence, while Daimler-Benz envied Chrysler's well-grounded designs and mass-production capabilities.

DaimlerChrysler Is Born

In early 1998, Daimler-Benz chair Juergen Schrempp visited Chrysler CEO Robert Eaton at his Auburn Hills, Michigan, office. During a brief meeting, which lasted only seventeen minutes, the two executives agreed to look into a potential merger. In early May, after many more top secret meetings, the merger was announced. It was finalized by the end of the year, and Eaton, along with Schrempp, shared the role of chief executive officer of the newly formed DaimlerChrysler AG. In 2000, Eaton left the company and was replaced by German executive Dieter Zetsche, who became president and CEO of the Chrysler Group. Eaton had been with Chrysler for seven years and guided it through its most profitable era.

The DaimlerChrysler merger created a new international powerhouse, with revenues of $130 billion and 421,000 employees on several continents. By 2001, however, it became clear that the German half of DaimlerChrysler was the dominate partner, and some analysts said that Schrempp and Zetsche ruled with iron fists. In a 2001 article, The Economist called the German auto executives "overlords" and reported that many employees resented the direction the company had taken since the merger. That same year, DaimlerChrysler announced a three-year cost-cutting program that included closing six plants, reducing production at seven other plants, and cutting twenty-six thousand jobs. As it went into 2002, the company conducted another management shake-up, this time in the Chrysler Group's marketing departments.

Gearing Up for the Future

Since its inception, Chrysler has been the most precarious of the top three American automakers. The company twice teetered on the verge of bankruptcy: once in the late 1970s

and again in the early 1990s. Lee Iacocca fixed Chrysler's financial woes of the late 1970s and early 1980s. Robert Eaton then came aboard as Chrysler was retooling for a new era, and by the late 1990s had solved many of the engineering and marketing problems that contributed to the company's near demise.

The DaimlerChrysler deal of 1998 appeared to have ended Chrysler's long history of financial problems. The German company adopted a more conservative management policy and cut costs where necessary, which included laying off employees and closing plants. The future of DaimlerChrysler, however, depended a lot on several factors beyond the company's control: the price of gasoline; the global, and particularly the U.S., economy; and calls from the federal government for stricter safety features, emission control, and better fuel efficiency. In the early twenty-first century, DaimlerChrysler focused on the factors it could control, such as production costs, the number of vehicles it produced, and responding to the ever-changing car buying habits of consumers.