Chrysler : Iacocca Adds a Key Link in Plan to Build Global Firm

DETROIT — Lee A. Iacocca has never been a man who thinks small.

Throughout his long career in Detroit--even during his darkest days in the midst of Chrysler’s financial crisis--he has coveted the enormous power of his cross-town nemesis, General Motors.

The Chrysler chairman has dreamed, often in public, of linking together a chain of Japanese, American and European auto companies to create an international powerhouse capable of going toe-to-toe around the globe with the world’s largest industrial corporation.

Now that Iacocca is 62, and just a few years from retirement, it seems unlikely that he will ever transform Chrysler into what he fondly has nicknamed “Global Motors.”

But one sidelight in last week’s announcement by Chrysler that it plans to acquire American Motors brought a hint that Iacocca may not be ready to give up on his dream of becoming a truly international player after all.

Inexpensive Entry

Certainly, it’s clear from Iacocca’s own statements last week that he believes that the crown jewels in the AMC acquisition are on the domestic side.

Through AMC’s Jeep division, Chrysler has found a very inexpensive way to gain entry into the highly profitable market for four-wheel-drive utility vehicles.

AMC’s brand-new Canadian plant in Bramalea, Ontario, will also help ease Chrysler’s shortage of North American assembly capacity.

Yet at the same time, the deal has important international implications for Chrysler as well. It will allow Chrysler to forge an important link with a European auto giant--Renault of France--a link that some analysts believe could help Chrysler fill out the network of relationships with foreign auto makers that Iacocca has been nurturing ever since he started rebuilding Chrysler in the wake of its financial crisis of the early 1980s.

“I think the connection to Renault has the potential of being the most important long-range benefit of this deal for Chrysler,” observes John Hammond, an analyst with J. D. Power & Associates, an automotive market research firm.

“For years I’ve said that for Chrysler to assure its own long-range viability, it had to improve its balance sheet and become more of an international presence. Well, Chrysler has fixed its balance sheet, and now it may have an opportunity to enhance its international standing as well.”

Chrysler will inherit its new ties with Renault as soon it completes its AMC deal. The French auto maker has had working control of AMC for the last several years, and has effectively transformed AMC into its North American arm for passenger car manufacturing and distribution.

Now, as part of its agreement to buy Renault’s 46.1% stake in AMC, Chrysler will effectively take over the North American distribution of Renault imports, as well as the production of a new line of Renault mid-size cars at the new AMC plant in Canada.

As part of the deal, Chrysler has signed an agreement that extends through 1991 to sell Renault’s Medallion, a French-built compact model introduced March 2, and Renault’s Premier, a mid-size car scheduled to go into production at AMC’s new Bramalea assembly plant in the fall.

And, while Chrysler is likely to drop the slow-selling Renault Alliance model, which is built by AMC in Kenosha, Wis., as soon as possible, it is expected to go ahead with AMC’s plans to import Renault’s new sports car, the Alpine, beginning this summer.

Chrysler will thus be adding Renault to a growing stable of international partners already supplying it either with parts or fully built cars for the U.S. market: Mitsubishi of Japan, which produces subcompacts, sports cars, trucks, utility vehicles, station wagons, engines and other major components for Chrysler; tiny Maserati of Italy, which is building a new line of specialty luxury cars for Chrysler, and Samsung of South Korea, which has agreed to supply Chrysler with components.

Chrysler’s Canadian subsidiary, which already distributes Peugeot cars, has just signed a deal to import subcompacts built in Thailand by a joint venture between Mitsubishi and a local Thai manufacturer. The Mitsubishi-designed, Thai-built small cars will be introduced in Canada either late this year or early in 1988, according to Chrysler.

Creates Opportunity

Within that international context, some industry observers believe that the new connection with Renault opens new, long-range options that may take years for Chrysler to fully explore.

“I think it is important, when you look at the AMC deal, to think beyond Jeep and the Ontario plant, and to look at ways that Chrysler and Renault might team up,” says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan.

“The first thing is to establish the relationship, and then that creates the international opportunity. It is probably something Chrysler will try to develop over the next couple of years.”

By taking advantage of Renault’s European distribution system, for instance, Chrysler could re-establish the sales presence in Europe that it forfeited in the 1970s, when it sold its ailing European subsidiary to Peugeot.

Chrysler is clearly eager to get back into Europe. Last year, Iacocca persuaded Robert Lutz, a highly regarded Ford executive with extensive experience running Ford’s European operations, to defect to Chrysler in order to help rebuild Chrysler’s overseas business.

And earlier this month, Chrysler announced its first significant foray into Europe in nearly a decade: Beginning next fall, it plans to sell 5,000 U.S.-built cars a year in West Germany and Switzerland and hopes to expand the export program in later years.

Chrysler spokesman Baron Bates adds that Chrysler is now studying whether it could eventually sell such exports through Renault.

Contains Some Risks

“I think Chrysler is really looking for growth in Europe,” says Hammond. “And if they could find a way to leverage Renault to get access to the European market, I think they would like to do so.”

Still, the link to Renault, a financially ailing giant owned by the French government, is fraught with risks for Chrysler. With huge losses in Europe, Renault is mired in a major domestic crisis and is now trying to retrench in the face of stiff opposition from powerful French labor unions.

In fact, Renault seemed eager to sell its stake in AMC in order to concentrate on its more pressing problems at home. Renault executives apparently realized that it wouldn’t be politically feasible for a nationalized company to continue to subsidize a money-losing operation overseas while slashing costs and jobs in France. As a result, some analysts believe, Renault may be too preoccupied for now to work closely with Chrysler in Europe.

In the U.S. market, meanwhile, after years of selling what most observers agree were shoddy products--including Le Car and the Fuego--Renault developed serious image problems among consumers in the early 1980s. By 1986, its French-built cars had been virtually run out of the American market, and the only Renaults on sale in the United States were cars like the Alliance built by AMC.

Indeed, it briefly let its import “Renault’s cars have gotten really terrible ratings on quality and customer satisfaction,” says Ted Sullivan, an analyst with Chase Econometrics, an economic forecasting firm.

Chrysler thus may be in danger of having its own quality reputation, which it has slowly rebuilt in recent years, dragged back down by Renault.

Chrysler also must figure out how to distribute Renault models and how to streamline the existing AMC-Renault-Jeep dealer network, generally considered to be one of the weakest in the industry.

Hammond suggests that the AMC-Renault dealer system could best be used as the basis for a new import division, selling cars from Chrysler’s overseas partners: mid-size and intermediate models from Renault, subcompacts and sports cars from Mitsubishi and mini-cars from Samsung or another Third World supplier.

But other analysts caution that Chrysler will have a tough time altering franchise agreements with the 1,300 AMC-Renault dealers, and may be forced to continue AMC’s existing distribution arrangements.

But with all of Renault’s problems, the French connection does give Chrysler international flexibility that it has lacked in the past, analysts believe.

“It is still too early to tell what will become of it,” says Cole. “I don’t think Chrysler is interested in buying into Renault’s problems, but as those get sorted out, this deal could present some interesting opportunities.”

TOP 15 AUTO MANUFACTURERS Based on worldwide production for 1985 Manufacturer 1985 car production General Motors ....... 7,090,664 Ford ................. 3,813,031 Toyota ............... 2,619,599 Volkswagen ........... 2,126,996 Nissan ............... 2,005,020 Renault .............. 1,607,609 Peugeot/Citroen ...... 1,545,762 Chrysler ............. 1,305,100 Fiat ................. 1,230,383 Honda ................ 1,101,747 Mazda .................. 815,074 UAZ .................... 785,000 Mitsubishi ............. 570,865 Daimler-Benz ........... 537,909 British Leyland ........ 465,104 Source: Motor Vehicle Manufacturers Assn.