CHRYSLER'S TURBULENT ECONOMIC CONDITIONS

Chrysler's Turbulent Economic Conditions

Chrysler's Turbulent Economic Conditions

Introduction

Chrysler Group is America's #3 auto manufacturer, but by the end of 2008 had effectively been bankrupted by the savage decline in the US car market. It was saved from full collapse only by financial assistance from the US government. A year earlier, Chrysler had regained its independence following the dissolution of a mammoth merger with German rival Daimler. In 1998, that deal had seemed the ideal step forward for Chrysler, then close to completing the slow and painful process of dragging itself out of an earlier near-collapse in the 1970s. But what was described at the time as a "merger of equals" quickly turned into a full-scale takeover of Chrysler by the German company, and performance suffered.

Discussion

Chrysler's: Analysis of the Changes Based On the Turbulent Economic Conditions-A Look on Down-Sizing, New Products etc.

Tom and Stephen, (2009) mention in Spring 2009, Chrysler struggled to avert a complete financial meltdown while the US government and its controlling investors raced to structure an arrangement that would ensure its longer term survival. Under pressure of deadlines set by the Treasury, a deal was finally agreed with the Italian manufacturer and the UAW labour union. According to the terms of this arrangement, the newly slimmed down Chrysler, its debts and much of its inefficient dealership network washed away under Chapter 11 restructuring, will be led by a largely Fiat-appointed management team (Tom and Stephen, 2009).

The Italian company was granted a 20% equity stake, not in return for cash, but for the injection of technology and small vehicle designs which can be built and marketed in the US. Fiat will be able to increase that holding if certain performance targets are met, and once the company has repaid the $9bn it owes to the US government, which has an 8% holding, and the Canadian government with 2% (Tom and Stephen, 2009). The UAW union hold a 55% stake in the new business through a medical benefits trust, and agreed to certain modifications in working arrangements. Will it work? Only time will tell, but a huge amount of taxpayers' cash and the livelihoods of thousands of people are at stake if it does not.

As the global recession grinds on, a growing number of franchisors are likely to be forced to take similar action, leaving hundreds if not thousands of franchisees in the lurch. The Chrysler bankruptcy has also shed light on some troubling systemic issues that have made the franchise industry particularly unstable in the bad economy.

The biggest problem is franchisor debt. During the boom years, when money was easy, far too many franchisors loaded up on debt to speed their expansion. But with the credit crunch and the economic downturn, franchisor debt has become a ticking time bomb for the industry (Jefferys, 2006).

The other major issue is over-storing. Franchise agreements often contain provisions designating exclusive "territories" for franchisees. When the economy was flush, territorial boundaries for some franchisors suddenly became less clearly ...