Just before its acquisition by Daimler, Chrylser Corporation was one of the most profitable auto companies in the world. Its investments and cost-cutting in the early 1990s - investments in people, technology, and equipment, and cost-cutting in waste reduction, letting extra layers of management ?attrit? out, and eliminating unnecessary rework - led to low production and engineering costs, with dramatic increases in quality, marred by a few supplier gaffes. The company was earning rave reviews on just about every model, with the Intrepid, Ram, Neon, and (to a lesser degree) Cirrus all setting new standards in their niches. The Neon forced all competitors, including the Japanese, back to their drawing boards to get extra power, cornering, and space into their small cars; the Ram forced other truck vendors to revamp their interiors and boost their power and capacity. The Intrepid proved that you could have a big car that handled like a small car without losing comfort.
While Chrysler started to lose it in the mid-1990s, with Bob Eaton reportedly making foolish cost-cutting decisions that hurt the cars (Neon head gaskets, anyone?) and letting fat grow in middle management, it was still insanely popular, and technology continued to progress, with the company constantly innovating and forcing others to catch up.
Then came the acquisition, led by a frightened, crying Bob Eaton, and opposed by the only other American in senior management who had worked in Germany for any length of time - Bob Lutz, who spoke German, understood what was happening, and would have held out for far more favorable terms. Had Lutz prevailed, it might still be DaimlerChrylser, but Chrysler would be equal to or above Mercedes, not the other way around; the Crossfire, if they ever made it, would have had a Chrysler powertrain; and Chrysler would probably still be insanely profitable, despite the market hit in big trucks. Before the takeover, Chrysler made fuel-efficient cars, and it could react quickly, without the need to consult Germany for permission.
It took a year or two for the Mercedes crowd to worm their way in, accompanied by CEO musical chairs, but worm their way in they did. They took away Chrysler Credit from the Chrysler reporting line, changed all the signs, and started boasting of German engineering, in sales campaigns that invariably killed off sales. (But we?ve gone over that often enough.)
What Chrysler proponents often note is the sudden disappearance of Chrysler?s $8 billion emergency fund. This would have paid for ALL the losses sustained to date - most or all of which would not have happened if the takeover had not happened! Particularly because Chrysler Credit was a major profit driver. Talking about Chrysler revenue without looking at Chrysler Credit is ignorant at best, and cunning at worst.
But now we have more evidence of how things worked. We were told by insiders that Chrysler was forced to pay massive consulting fees to Mercedes engineers, even when they were assigned to help those same engineers on Mercedes cost reductions and quality improvements. We were told that Chrysler had to pay massive royalties on items they were forced to use, like the Mercedes automatic, which apparently is not quite as good as the ZF automatics which some say they were copied from, and which seems to have cost as much as the ZF. (ZF is not part of DCX.)
The Freightliner case has shown us that DCX has had no compunction about illegally shifting funds from one company to another as needed. Perhaps that is why Chrysler suddenly went from very profitable to very unprofitable, in a mere two years, with little other reason than being acquired by Daimler-Benz. We were told that Daimler-Benz was mis-led by Chrysler management and executives, and that the books had been cooked. Maybe. But given that DCX has been defending itself in courts across the world against charges of bribery, illegal movement of funds, and fraud, we somehow doubt that the poor innocents at Daimler-Benz were the victims. Indeed, we can point to their general modus operandi of buying companies, sucking them dry, and leaving them to try to salvage what they can - Fokker and Freightliner being two examples.
Of course then there are the benefits to the acquisition. Access to Mercedes? parts bin - which means nothing. Chrysler could have bought active suspension technology from anyone, along with those ZF automatics. They don?t seem to have a choice on what parts they use, from those steering columns in the 300 to the apparent inability to pick a non-Mercedes diesel in their cars and light trucks; and when they do get parts, they are limited by Mercedes? marketing demands (e.g. to five speeds in the LX automatics). The Mercedes parts are also almost certainly more costly than what Chrysler could design itself.
Then there?s access to Mercedes expertise. Well, that sure worked out well - it added three years to the development time for their vehicles, meaning that Chrysler is now behind instead of ahead.
Then there?s access to Mercedes? quality. Mercedes quality ratings are almost invariably below those of Chrysler, and we think they?re experts? Why is that? Because Mercedes charges more?
The Germans apparently want DaimlerChrysler to drop Chrysler and sell it to the Chinese. We say that we also want Chrysler to be separated; but selling it to a Chinese company would be foolhardy, to say the least. Our solution is to make Chrysler independent but largely owned by Daimler. This would fix the problem of Chrysler?s profitability in short order, while allowing Mercedes to continue using Chrysler technology, engineering, manufacturing expertise, and volume discounts, all which they now depend on. However, they couldn?t continue to allocate massive amounts of money from Chrysler Group to their beloved Mercedes, so they can pretend to make a profit. That, in my opinion, is why Chrysler will never be set free, but will continue to spiral downwards, until there?s no more money to be sucked out. At that point, Chrysler will be set free, but probably not under the same favorable terms as Rover; and quite probably it will indeed be a Chinese company that takes it.
