Page last updated at 16:34 GMT, Thursday, 30 April 2009 17:34 UK

Chrysler's highway to hell

1963 Dodge promotional image

By Kabir Chibber
Business reporter, BBC News

Chrysler's bankruptcy filing may be the beginning of the end for the independence of America's "Big Three" makers.

Mr Obama has said that bankruptcy will be a temporary measure, designed to put Chrysler back on its feet so it can become profitable again, yet the moment will be a sad chapter to a once powerful force in American life.

It is part of the plan to both revive and shrink the carmaker, reducing the number of workers and dealers while importing new technology from its new merger partner Fiat.

But it is not the first time that Chrysler has had to re-invent itself.

Carter's bail-out

In the 1970s, Chrysler was losing money and struggling to pay its employees because of poor sales and large-scale recalls of some of its cars.

It would be a very quick type of bankruptcy and they could continue operating and emerge on the other side in a much stronger position
President Obama

It began the road to recovery by hiring now-legendary American businessman Lee Iacocca, who sold Chrysler's loss-making European division to Peugeot.

But Chrysler survived thanks to $1.5bn in federal loans guaranteed from Jimmy Carter's administration in the late 1970s. At the time the pledge was unprecedented.

Mr Iacocca concentrated on minivans - indeed, Chrysler is widely seen as the inventor of the people carrier segment - and cars such as the Dodge Caravan and Plymouth Voyager, which sold very well in the 1980s. He also brought the Jeep brand to the company through an acquisition in 1987.

Targeting larger vehicles proved a success.

Reagan and Lee Iacocca
Lee Iacocca, on the right, was instrumental in reviving Chrysler

During the 1990s there was a massive shift towards sports utility vehicles (SUVs) - classified as trucks in the US and thus not subject to ever more stringent emission regulations governing cars.

SUVs also earned US automotive groups competitive advantage since there were limits on truck imports from Japan.

Chrysler soon became the most profitable company in the world, its return to form widely attributed to Mr Iacocca's business savvy.

He became known for sayings such as "People want economy and they will pay any price to get it" and his famous slogan from Chrysler ads that he appeared in during the 1980s: "If you can find a better car, buy it."

This made the 84-year-old a much-loved public figure to many Americans, the archetypal straight-talking leadership guru.

He left the company in 1993, but Chrysler continued to prosper, culminating in a historic $38bn takeover by Germany's Daimler-Benz in 1998.

Sell off

But tastes in the US shifted again. As petrol prices rose in recent years, consumers opted to buy smaller, more economical cars, which Japanese car firms specialised in.

Chrysler Dodge Ram
Chrysler has been burning through money as it tries to restructure itself

Daimler finally sold off the majority of the $1.5bn-loss-making Chrysler to US private equity firm Cerberus for 7.4bn euros in 2007.

The changing fortunes culminated in Chrysler joining GM and going cap in hand to the US government last year for aid, leading to a $4bn emergency loan in January and the request for a further $5bn.

One of the mooted saviours of the carmaker has been Italy's Fiat, which reached an agreement to take a 35% stake in Chrysler and create a "global strategic alliance" in January.

Mr Obama's task force has been in favour of a tie-up with the Italian giant as a way to save the carmaker and taxpayer's money.

Ironically, Mr Iacocca tried to strike a deal with Fiat in 1990. But the Italians decided against this after reviewing Chrysler's books.

Yet while Fiat has seen its sales - and reputation - improve in recent years, sales in Italy of its branded cars dropped almost 30% in February, and its debt has been downgraded to "junk" status by both Moody's and Fitch already this year.

Fiat chief executive Sergio Marchionne has said only about five or six major carmakers worldwide will survive this recession. He is betting that a tie-up with Chrysler will make his company one of them.

The idea behind the tie-up is that it gives Fiat access to the US market and Chrysler gets first dibs on Fiat's fuel-efficient vehicle technologies. The two companies aim to produce their first new model together by 2011.

Chrysler once more finds itself reliant on the government to guarantee its future.

But even Mr Iacocca would find it tough to guess where Chrysler goes from here.

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