Chrysler Chairman Lee A. Iacocca said a statement he made about the automaker's finances was taken out of context in a story in yesterday's business section. Iacocca was referring to whether the company would have to cut its stock dividend when he said, "I would hope that we'll be able to muddle through, but maybe we can't." The story gave the impression that he was referring to the company's overall ability to survive a prolonged recession. (Published 2/9/91)
Not so many months ago, Chrysler Corp. was merely fighting for market share. Now, it's fighting for its life.
Threatened by swiftly declining sales, a shaky economy and now an attack on its most popular product -- the minivan -- Chrysler again finds itself in perilous financial condition less than a decade after the government helped to pull it from the brink of bankruptcy.
A prolonged war or recession could put Chrysler out of business, Chrysler Chairman Lee A. Iacocca said yesterday.
"I would hope that we'll be able to muddle through," Iacocca said at a news conference yesterday, where he announced the automaker's bleak earnings results. "But maybe we can't," if the bad economy or the war persists, Iacocca said.
Chrysler's earnings plunged 81 percent in 1990, to $68 million against the previous year's $359 million. Earnings would have been losses had it not been for an aggressive cost-cutting campaign and the solid performance of its finance subsidiary, Chrysler Financial Corp.
The dismal report came just one day after Standard & Poor's Corp. lowered the automaker's debt rating to junk-bond grade -- a move that could cost Chrysler $28 million a year in additional borrowing costs.
"Our concerns are over the longer time frame: about whether Chrysler will have the financial flexibility to handle disappointments after it has survived this downturn," said Scott Sprinzen, Standard & Poor's vice president.
Chrysler's greatest vulnerability is the heart of its business -- the manufacture and sale of cars and trucks. On those operations the company lost money, $291 million compared with the $151 million it earned in the car and truck segment in 1989.
The company's share of the U.S. auto market fell to 12.3 percent in 1990 from 13.8 percent the year before -- no small decline in an industry where each 10th of a percentage point in market share is worth several hundred million dollars. Accordingly, sales revenues also fell, down to $30.6 billion in 1990 from $35.2 billion the year before.
Yesterday, Iacocca seemed relieved that the company had managed to turn a profit. But he worried aloud that the recessed economy could thwart Chrysler's quest for fiscal stability and corporate growth.
"We managed to make a little money," Iacocca said. "But I'm not going to get euphoric about what is a little better than a break-even year, because the whole industry went into the tank."
Chrysler cannot continue to survive indefinitely by cutting costs, Iacocca said. A cost-cutting campaign begun 18 months ago so far has eliminated $2.5 billion from its annual spending; now, the company is pushing to trim costs by $3 billion annually.
"But there is a point where you can't make money or stay afloat just by cutting costs," Iacocca said. "You've got to have a revenue stream."
Such assessments are becoming increasingly common at Chrysler.
Earlier this month, the automaker found itself under the attack of one of the nation's most influential consumer magazines, Consumer Reports, which criticized the "Ultradrive" transmissions used in, among other vehicles, Chrysler's popular minivans.
If attempts to blunt the impact of the report aren't resolved, it "could drive us all out of business," Iacocca told 4,000 of his dealers last week in a closed-circuit broadcast.
"We call them the crown jewels of this company and of your dealerships," Iacocca said of the minivans. "But actually, they are our bread and butter. Without minivans, we don't eat. It's that simple."
The magazine urged its readers to "steer clear" of Chrysler's electronically operated Ultradrive transmission found in most of the company's minivans and in many of its mid-size passenger cars. The transmission, introduced in 1989, is often installed with Chrysler's V-6 engines.
Both Chrysler officials and car dealers acknowledged that early versions of the transmissions developed leaks that affected the clutch and forced drivers of the affected vehicles to "limp" home in second gear. But Iacocca contends that Chrysler long ago instituted programs to provide loaner cars and other services to customers with Ultradrive transmission complaints, and that the company has fixed the transmission problems in newer models.
Consumer Reports disagrees. The magazine's findings, based on surveys of its readers who own Chrysler products equipped with automatic Ultradrive transmissions, show that more than 14 percent of those vehicles had transmission problems compared with a 3 percent problem rating for all owners of 1989 vehicles with automatic gearboxes.
Among 1990 Chrysler cars with Ultradrive, 7 percent were reported to have transmission problems, compared with 2 percent for all cars with automatic transmissions, the magazine said.
Consumer Reports officials said that they also had transmission problems with a 1991 minivan that it bought and tested and that it ran into similar difficulties with a 1991 Chrysler New Yorker.
"It's up to the reader to make a determination of whether we're right," said David C. Berliner, assistant director of Consumers Union of U.S. Inc., publishers of Consumer Reports.
"But, the way we see it, if the sun is shining and the sky is blue and the clock says 11 a.m., it's still morning," Berliner said.
The issue is a critical one for Chrysler. It sells nearly 400,000 minivans each year, and makes an estimated $4,000 pretax profit on each minivan sale, according to Automotive News, an industry trade journal.