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The last several years have been unkind to the smallest of the Detroit Three, Chrysler LLC (Auburn Hills, MI). First it was sold to private equity firm Cerberus Capital Management LP (New York, NY). Then the economy collapsed . . . and with it the automotive sector. Now, after receiving billions in tax-payer bailout cash and struggling to prove it could survive on its own, the little automaker that could has been forced to file for Chapter 11 bankruptcy.

THE BUSINESS AT HAND

While it is really no surprise at this point that Chrysler was forced into bankruptcy, it is sad to see such a storied company suffer this fate. Facing almost nonexistent sales, billions in outstanding debt and a murky future, bankruptcy was the correct path to take. Now the automaker has closed all of its facilities for a period of at least 60 days as it begins bankruptcy proceedings.

In order to survive this bankruptcy, Chrysler will be forced to close some of its assembly plants and reduce its overall work force by a significant number as it organizes itself into a streamlined, profitable enterprise. The company must also make some tough decisions about what exactly it will continue to sell. Chrysler still produces 30 models of vehicles, a number that will most assuredly be cut in at least half. (Editor’s Note: For deeper insights and solutions into this branding problem, reference “The Demise of Detriot’s Big Three: What Will We Learn?” by David R. Dixon and Gary Conner in the February 2009 issue of Fabricating & Metalworking.)

Some of these cuts will take the form of a discontinuation of specific models. However, according to research by Industrial Info Resources (Sugar Land, TX), sources within the sector indicate that General Motors Corporation (Detroit, MI) has been in discussions with Chrysler about obtaining the smaller automaker's most successful brands: the Jeep line of vehicles and the Town & Country minivan. While these negotiations have not gotten past the talking stage, it does not really make much sense for GM – which is potentially facing bankruptcy itself if it cannot restructure by a June 1 deadline – to take on the burden of these additional models and brands when it already makes too many models that don't sell.

Bankruptcy court Judge Arthur Gonzalez recently heard the first motions in the Chrysler bankruptcy. The hope is that the automaker can work its way through the bankruptcy process within 60 days. The agreement that is under consideration would see Cerberus give up its 80 percent stake in Chrysler and have current CEO Robert Nardelli step down. The United Auto Workers (UAW; Detroit, MI) union will end up with a 55 percent stake in the company, while the U.S. government will own 8 percent and the Canadian and Ontario governments will each own 2 percent.

Fiat SpA (Italy), which has been in negotiations with Chrysler for months on an alliance agreement, will initially receive a 20 percent stake in the new Chrysler and will allow the reborn automaker to produce Fiat's line of smaller, more fuel-efficient vehicles in the U.S. Fiat's stake in Chrysler could increase to 35 percent if certain benchmarks are met. An additional 16 percent stake is available to the European automaker by 2016 if Chrysler's loans from the U.S. government are fully repaid.

The real question at this point is whether Chrysler can actually survive bankruptcy. Hard decisions must be made in the coming days and the downstream effects of the coming closures will take even longer to pan out. Many tier suppliers who provide parts to Chrysler will be forced to close facilities in the coming months. The ripple effect of this bankruptcy will not fully be felt until sometime next year.

Hopefully Chrysler can make the tough decisions and do what needs to be done to cut back on unnecessary models, significantly reduce the number of dealerships and cut the payroll enough to make itself a viable, if smaller, automaker once again. If Chrysler can complete this process with the right mindset, the time is ripe for the automaker to emerge even better than it was before. Like the phoenix, Chrysler can once again be a major player in the automotive sector, but there will be some painful times during the rebirth process.

This isn’t the first time Chrysler has endured pain since being founded by Walter P. Chrysler on June 6, 1925, when the Maxwell Motor Company (est. 1904) was re-organized into the Chrysler Corporation. The company’s legendary history has been filled with good times and bad.

GOING BACK: THE BUSINESS IN THE BEGINNING

Walter Chrysler originally arrived at the ailing Maxwell-Chalmers company in the early 1920s, having been hired to take over and overhaul the company's troubled operations after doing a similar rescue job at the Willys car company. In late 1923, production of the Chalmers automobile was ended.

In January 1924, Walter Chrysler launched his well-received namesake 6-cylinder automobile, designed to provide customers with an advanced, well-engineered car, but at a more affordable price than they might expect. Elements of this car are traceable back to a prototype that had been under development at Willys during the time Walter Chrysler was there.

The original 1924 Chrysler included a carburetor air filter, high compression engine, full pressure lubrication and an oil filter at a time when most autos came without these features. Among the innovations in its early years would be the first practical mass-produced four-wheel hydraulic brakes (a system nearly completely engineered by Chrysler, with patents assigned to Lockheed) and rubber engine mounts to reduce vibration.

Chrysler also developed a road wheel with a ridged rim designed to keep a deflated tire from flying off the wheel. This safety wheel was eventually adopted worldwide by the auto industry. Following the introduction of the Chrysler, the Maxwell was dropped after its 1925 model year run. The truth, however, is that the new line of lower-priced 4-cylinder Chryslers introduced for the 1926 model year were basically re-engineered and rebranded Maxwells.