Chrysler Corp. still sees a Ford in its future.
Despite a quick, backhanded rejection of its merger offer to Ford Motor Co. last April, Chrysler apparently can't get the idea of a combined Ford-Chrysler auto company out of its mind, according to industry sources.
Chrysler Chairman Lee A. Iacocca says the proposal has been shot dead by Ford. At a National Press Club speech Wednesday, Iacocca was asked about the potential of a Ford-Chrysler combination.
"I don't want to dwell on that," he replied. Chrysler did prepare a "white paper" outlining how the two companies might fit together, Iacocca said. "Ford chose not to discuss it at all, so we packed our bags and left. So there's no reason to discuss it."
Privately, Chrysler officials and some former Ford officials continue to say that a Ford merger within several years may be the best hope, not only for Chrysler but also for its larger rival, Ford.
The white paper, prepared by Chrysler and investment advisers from Salomon Brothers and Booz-Allen, remains confidential and Chrysler will not release it, but details from the proposal have become available.
The plan is based on merging the companies' strengths, as Chrysler sees them. Chrysler's front-wheel-drive K-cars would become the only compact and midsized models offered by the new company, and Ford would have to discontinue its Mustang and Fairmont models and the Mercury Zephyr and Capri. Ford's new Escort/Lynx models would take care of the subcompact field, displacing Chrysler's Omni/Horizon subcompacts.
Ford would abandon plans for a new, front-wheel-drive compact called the "Topaz," scheduled for introduction in the spring of 1983, and plans to restyle its midsized cars in the fall of 1983. It would also stop work on a 1985 minivan in favor of a Chrysler version that could be ready a year earlier.
With the money saved from those cancellations, Ford could concentrate on a new full-sized, front-wheel-drive model line to replace the LTD and Granada lines, the comparable Mercury models and Chrysler's current full-sized cars. The new cars would be ready no later than 1984 under this plan. Chrysler's truck line would be dropped, yielding that territory to Ford.
The combined company would have more new models to meet the barrage of competition from General Motors Co. scheduled for the next five years, and substantial savings resulting from an elimination of similar products, Chrysler's plan says. A combined company would have eight model lines instead of the 14 that both companies would produce independently.
According to Chrysler's calculations, the merger would save $679 million in 1982, because of reductions in staff and overhead, lower interest charges and the sale of surplus properties. Savings would rise to $407 million in 1984. Chrysler's fixed costs would drop from $3.1 billion in 1981 to $1.9 billion.
A merger would add Chrysler's 3,000 dealers to Ford's 6,000, and their combined production could give the new company 27 percent of the domestic auto market (excluding imports), making it a more respectable competitor to GM than either of the two companies could be separately. This assumes that Ford could sell 3.5 million cars in 1984 and that Chrysler would add 1.2 million units, with another 160,000 minicars or vans coming from Chrysler's financial partner, Mitsubishi.
The paper warns that the demise of Chrysler would wound Ford. Chrysler estimates that only 15 percent of its car business would go to Ford if Chrysler folded, with the rest going to GM and the foreign automakers.
The problem with the Ford-Chrysler merger idea is that few people outside Chrysler like it.
Ford surprised Chrysler by disclosing the plan last April and summarily vetoing it. Ford Chairman Philip A. Caldwell said Ford's directors "unanimously determined that a merger or other similar arrangement with Chrysler should be rejected as clearly not being in the best interest of Ford or its stockholders."
The animosity between Iacocca and Henry Ford II -- who fired Iacocca as Ford's president -- is enough to rule out a merger for the forseeable future, auto industry officials say. Beyond that, Ford says it doesn't want Chrysler's help and doesn't need it. Without Chrysler, it is bringing out a new, smaller Lincoln Continental this fall, a compact truck next spring and new Front-wheel-drive compacts in the fall of 1982.
Ford believes back-to-boom years in car sales are coming soon. "We must be ready for that turnaround, and ensure that we're prepared to capitalize on it," Caldwell said in a recent interview with Ward's Auto World magazine.
Most auto industry analysts aren't enthusiastic about the proposal, either."I don't think it makes a lot of sense," says Harvey E. Heinbach, a vice president of Merrill Lynch, Pierce, Fenner & Smith Inc.
Ford is clearly set on reducing its operating costs in the United States by buying more engines and other components abroad, Heinbach said. "I expect that trend to continue. The last thing they would want to do is pick up more manufacturing facilities.
"Secondly, Chrysler's financial position is still very weak; Ford's is getting weak, and it isn't in a position to acquire someone else's U.S. auto facilities.
"Finally, Ford is too far along in developing its own front-wheel-drive compact to ice it now," Heinbach said.
On the plus side, Chrysler has already gone through a painful financial contraction, laying off employes and selling surplus facilities. Its break-even point has been cut in half and its remaining front-wheel-drive assembly, engine and transmission plants are among the most modern and cost-efficient in the world.
These fixed-cost reductions are the key to the improved profitability that Chrysler projects if the merger occurs. As a division of Ford, Chrysler would contribute profits of $105 million in 1982, $537 million in 1983 and more than $1 billion in 1984, the Chrysler analysis says.
These estimates depend on a future that no analyst can predict confidently, however: Will the gradual expansion of GM's J-car line this fall begin to eat into the current K-car popularity? Will the new, luxury K-car models that arrive in September be priced too high for the market? Will sales recover in the fourth quarter?
The other question is whether Ford's optimistic outlook on its own future will prove correct.
The merger idea won't begin to look interesting to Ford until it needs the marriage as much as Chrysler does now, Heinbach said.