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At Chrysler, the hard work is just beginning

By the time Chrysler filed for bankruptcy earlier this month, it had already endured years of hard times. Now, the real work begins.

By the time Chrysler filed for bankruptcy, it already had endured years of hard times. Now the real work begins.

To rescue the Chrysler brand, experts say the company must attack a laundry list of gargantuan tasks, starting with successfully emerging from bankruptcy and including everything from pruning its product line to improving its employees’ battered morale.

The challenges faced by Chrysler could derail even the strongest of companies at the best of economic times.

“Organizations, big ones and small ones, usually can do one major thing very well at a time,” said Gerald C. Meyers, a professor of management at the University of Michigan and the former chairman and chief executive of American Motors Corp. “What’s going on at Chrysler is that they’re going to have to do a multitude of major things at the same time, and that’s nearly impossible to do well.”

In fact, few companies in the same position have succeeded. About half the companies that emerge from bankruptcy are either back in bankruptcy or out of business completely within five years, said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. Aside from Continental Airlines, he was hard-pressed to think of a large company that has filed bankruptcy since 1980 and come back strong.

“I don’t think their long-range chances are good,” LoPucki said.

Here are the biggest challenges and toughest choices Chrysler will face, according to experts surveyed by

1. Getting out of bankruptcy
By the time Chrysler sought Chapter 11 bankruptcy protection earlier this month, it already had a detailed plan for emerging from bankruptcy on a lightning-fast timetable. The highly unusual undertaking includes the backing of the U.S. government, which has agreed to provide financing. It also plans to emerge with an alliance with Fiat, which will initially own 20 percent of the company. The company is hoping the process will take just a couple of months, rather than the usual years of wrangling.

LoPucki expects that Chrysler will be able to push its plan through, despite initial opposition from some creditors, in part because of the enormous pressure the bankruptcy judge is likely facing from all sides. That should pave the way for a quick exit.

“Everything else in this case has essentially been determined,” he said.

2. Pruning the product line
Chrysler also must take a hard look at the many vehicles it currently produces and aggressively pare back its lineup to get rid of cars that are unpopular, unprofitable or too similar to other models out there.

Experts say the company’s beloved Jeep product line, popular Dodge pickup trucks and iconic minivans will likely make the cut. But, Meyers said, virtually all of the other Chrysler models could be on the chopping block, especially given plans to introduce a line of Fiat cars to the American public.

3. Selling Americans on Fiats
Even as it pares back its existing product line, experts say Chrysler needs to bulk up on fresh offerings.

“You need new models to get customers into the showroom,” said Robert M. Wiseman, a professor at Michigan State University’s Eli Broad College of Business.

The proposed deal with Fiat will bring in those new models at a much lower cost than if Chrysler created the cars themselves. Still, it remains to be seen whether Americans will embrace Fiat’s line of small, fuel-efficient cars, especially if gas prices remain relatively low.

The company also must deal with a host of administrative and design issues in bringing the Fiat products to the United States, Meyers said, including the meeting U.S. safety and emissions requirements.

4. Melding corporate cultures
When Chrysler merged with German automaker Daimler-Benz in the 1990s, Wiseman said the running joke in Michigan was that the correct pronunciation of “DaimlerChrysler” was to keep the “Chrysler” silent. It was a telling sign of cultural problems between the two companies, and one reason the partnership unraveled.

With Chrysler’s current chief executive, Bob Nardelli, scheduled to step down at the end of the bankruptcy process, and Fiat expected to play a key role in the new company, Wiseman predicts that Chrysler will again face the difficult task of adapting to a new corporate culture.

While transoceanic partnerships can work, Meyers said the cultural differences can be a key stumbling block.

“It’s one thing to have a partner. It’s a second thing to have a partner who speaks a different language. And it’s a third thing to have a partner who speaks a different language and is an ocean away from you,” Meyers said.

5. Improving morale  
Chrysler employees have endured a failed merger with Daimler-Benz, a failed attempt to go it alone, extensive buyouts and cutbacks, and now a bankruptcy filing and a plan for a major international alliance. That’s left many workers feeling angry, skeptical and unsure who’s in charge, which is not exactly a blueprint for motivating a workforce for a major overhaul.

“They’ve somehow got to rebuild confidence and morale in the organization,” Meyers said.

6. Maintaining good labor relations
Chrysler’s highly unusual bankruptcy plans calls for the union taking a 55 percent stake in the new company through an arm that provides retirement benefits to its members.

While the situation is unorthodox, several experts are optimistic about the deal, in part because the union does not appear to want to be involved in management decisions, or even maintain its stake, following the bankruptcy.

Harley Shaiken, a professor at UC Berkeley who closely follows the auto industry’s labor issues, said the union had little choice but to accept the equity instead of cash. Still, he does think the deal will give union leaders incentive to work to improve the company’s financial situation, and thus boost its stock price.

But any deals agreed to by union leadership must be approved by members, who may be less enthusiastic about helping the company keep its books balanced if it costs jobs, Meyers noted.

“What they care about is what’s happening to their job at the plant. If they see something coming that jeopardizes their work, they’re going to vote for their work,” he said.

7. Dealing with the dealers
Chrysler is expected to move aggressively to reduce the footprint of its dealer network. That’s bound to create significant ill will from car dealers who would like to stay in business, although the bankruptcy filing will likely give the company more leeway to sever those ties.

8. Keeping — and hopefully attracting more — customers
Jeremy Anwyl, chief executive of the automotive Web site publisher Edmunds Inc., has been surprised to find that Chrysler’s bankruptcy has not seemed to hurt sales so far.

Still, a bankruptcy filing is often a red flag for customers, who may worry that their warranty or other guarantees won’t be upheld.

Even if it can overcome the stigma of bankruptcy, Chrysler will still have to work at keeping its existing customers loyal as it aggressively cuts its product line and dealer network, while simultaneously trying to sell the public on a new line of Fiat cars. All of the restructuring work to save the corporation will be for naught if the process ends up confusing or alienating customers.

“At the end of the day it doesn’t mean anything if it’s not relevant to the customer,” Anwyl said.

9. Partnering with the government
Chrysler is in the highly unusual position of relying on the government for financing during bankruptcy, and it plans to emerge with the government as a key investor. The backing of the government could be a boon, given the Treasury's deep pockets, but experts say it also could hurt the company if political considerations affect its ability to make necessary and difficult business decisions.

10. Surviving the recession.
Even if things go as well as can be expected with Chrysler’s restructuring, the company still must do what every other company in the United States is dong — navigate its way through a punishing recession that has severely impacted both access to credit and consumer spending.

Automakers have been hit especially hard, leading to a global oversupply of vehicles. Many believe that glut will ultimately push some carmakers out of business; Chrysler must work to avoid that fate.

“Ultimately, the big hurdle for Chrysler is selling cars,” LoPucki said.

But even that measure is not so simple. To succeed financially, Chrysler also must accurately answer the more complicated question of how many cars it can sell.

“You’ve got to be realistic about the sales level that the market would support,” Anwyl said. “They have been selling a good number of cars. It’s just that they’ve been structured around selling quite a bit more than that.”