The New Chrysler

After nine years as a division of Daimler-Chrysler, the Chrysler corporation is on its own again. Daimler has taken a licking on the deal, losing the better part of the $36 billion it invested in the company.

Even more notable, Chrysler becomes the largest privately owned automaker in the world, and the only major privately held automaker that the United States has seen since the consolidations that produced the Big 3 in the early years ot the 20th century.

It leaves Daimler with 80,735 employees, about two thirds of the number it started with, and is also producing fewer vehicles (about 2.65 million now, down about 10% from where it started).

While the headline portrays the deal as a sale of 80% of the company for $7.4 billion to private equity investors, this appears to be a deceptive characterization, as most of the money will simply be a capital contribution to the company, rather than a payment made to Daimler. Daimler is left only with 20% of the stock in a company whose stock is nearly worthless.

The acquiring company, Cerebrus, also controls GMAC.

Chrysler is a company that clearly has issues. Why do you do stupid thinks like running an ad for the Dodge Durango, one of the least fuel efficient SUVs on the market today, in Sunset Magazine (with a readership full of left coast latte drinking liberals0 that touts its fuel efficiency? There are reasons you might want to buy a Dodge Durango. For example, many dealers here in Denver are selling them for $11,000 below MSRP because they can't get them off the lot otherwise. And, some people really do need a gigantic V8 engine and enough room to carry an entire board of directors off roads around the oil fields in a single vehicle, I suppose. But, why advertise and emphasize the one point that the vehicle is deplorably bad at, in a magazine targeted at people who also read Consumer Reports and will discover your fraud, when gasoline has crossed the $3 a gallon mark and it racing towards $4 a gallon?

Somebody at Chrysler, indeed apparently almost everybody in the design team, is deeply convinced that every American deeply wants a 400 horsepower sedan, so they can rumble louder while they are stuck in bumper to bumper rush hour traffic in a vehicle named after small arms ammunition. I don't happen to know anyone like that, but I admit that my social circles are not a representative sample of the general population. Fresh designs were long overdue at Chrysler which had previously been known for its uninspired lingering old models. But, do they not have focus groups in Detroit? The company has, meanwhile, made no serious efforts that I'm aware of to develop hybrid drive cars, or otherwise meet needs of the coming twenty-teens that might differ from those of the 1960s.

Without the pressure of SEC reporting, quarterly targets from analysts, or the need to satisfy the whims of a CEO who sets his own salary, maybe Chrysler can turn itself around. But, the new buyers didn't escape legacy costs that are ruinous, bad designs, aging plants, or a weak corporate culture, so it is hard to see how this will happen.