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Chapter 11 Bankruptcy: It’s Got a Hemi

Posted April 30, 2009, 11:22 a.m.

While it’s not 100 percent official yet, major media outlets are reporting that Chrysler LLC—the parent of Chrysler, Dodge, and Jeep—will be filing for Chapter 11 bankruptcy today. Chrysler has been unable to reach agreements with enough of its lenders to reduce debt and remain solvent.

While under Chapter 11 protection, Chrysler is expected to reorganize, merge or partner with Italian automaker Fiat, and come out in as little as 2 or 3 months as a leaner, profitable American automotive company.

Chrysler’s story, in particular, is a very frustrating one for me. The company has long been my favorite of the former ‘big three’ U.S. automakers. My last American-branded car was a 1998 Chrysler Cirrus—up-market cousin of the Dodge Stratus—and it was a great little mid-size sedan. I had few complaints about the vehicle, and it had no major mechanical problems except what you would expect for a car with the age and mileage it had.

Chrysler was founded in 1925 and, with some speed-bumps here and there, remained pretty successful until the 1970s oil crisis. The company bought a 15 percent stake in Japan’s Mitsubishi Motors and began selling re-badged Mitsubishis at the low end. In 1979, Chrysler notoriously went begging to the federal government for $1.5 billion in loan guarantees—peanuts compared to more recent auto bailouts—and the company received those guarantees in 1980.

Those loans were completely paid off in 1983 following a resurgence by the company, led by the K-Car platform and Chrysler’s completely new invention, the minivan. The efficient K-Cars dominated Chrysler’s sales through the 1980s. In 1987, Chrysler purchased American Motors Corporation (AMC), including its Jeep subsidiary and the newly-established Eagle marquee. In the 1990s Chrysler began to introduce new and cutting edge concepts that changed the face of the industry—cab-forward design being foremost, followed by great-looking and unique cars like the Dodge Viper, Plymouth Prowler, and Chrysler PT Cruiser.

In 1998, German auto-maker Daimler-Benz (parent of Mercedes) purchased Chrysler, though the companies intentionally misled the public and shareholders by declaring the buyout to be a ‘merger of equals’ and calling the new company DaimlerChrysler. The Eagle brand was phased out in 1998, and the Plymouth brand was phased out in 2001 leaving the Chrysler division with today’s trifecta of Chrysler, Dodge, and Jeep. The long partnership with Mitsubishi was discontinued in the mid 2000s.

DaimlerChrysler, managed primarily by German executives, could have spent considerable time, money, and effort to restructure the Chrysler division—particularly with regard to United Auto Workers (UAW) stranglehold on the company’s profits—but failed to do so. After eight years, DaimlerChrysler divested itself of the Chrysler division and re-named itself to Daimler.

Chrysler was purchased by Cerberus Capital Management, an investment firm, and became a privately-held corporation named Chrysler LLC. This new leadership team, once again, had an opportunity to correct the over-inflated costs brought by UAW labor—particularly when the UAW went on strike (for six hours) in 2007. Once again, the firm missed the opportunity. Meanwhile, short on cash, the company continued to milk old models (like one ten-year old design, the PT Cruiser) and failed to introduce new, compelling models. Interior quality dropped drastically during the DaimlerChrysler days, and did not quickly improve under Cerberus. The company, much to the chagrin of observers like myself, seemed to be trying to commit suicide.

Now here we are, with Chrysler having received major ‘equity stake’ from the government (i.e., they partially nationalized), the company is desperately trying to restructure its debt, and it’s trying to engage in yet another merger with yet another foreign automaker. And now, the once-mighty Chrysler is entering Chapter 11 bankruptcy protection.

I am most disappointed with Cerberus at this point. As a privately-held company, Chrysler under Cerberus’s ownership had the best chance of any of the ‘big three’ to end the stranglehold the UAW held on the industry. They had an unprecedented opportunity to rebuild a great American manufacturing corporation without having to worry about outside investors second-guessing every move. This was Chrysler’s chance to become a model for the other two U.S. automakers to follow, but Cerberus failed to make the hard choices and take the big risks. As a result, Cerberus has likely lost their investment and will receive little in return for their foray into the backwaters of building cars, and a great car company will likely emerge from this incredible mess as a mere Italian-owned shadow of itself.

Scott Bradford has been building web sites and using them to say what he thinks since 1995, which tended to get him in trouble with power-tripping assistant principals at the time. He holds a bachelor’s degree in Public Administration from George Mason University, but has spent most of his career (so far) working on public- and private-sector web sites. He is not a member of any political party, and brands himself an ‘independent constitutional conservative.’ In addition to holding down a day job and blogging about challenging subjects like politics, religion, and technology, Scott is also a devout Catholic, gun-owner, bike rider, and music lover with a wife, two cats, and a dog.