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Cover story

How Walter's dream became a nightmare

Nimble, brash, profitable. Words that were once used to describe Chrysler until a disastrous union with a foreign suitor sowed the seeds of its destruction. Greg Keenan looks at the fallen icon and its lesson to an industry careening toward consolidation.

From Saturday's Globe and Mail

Stephen Feinberg was saying almost exactly what Buzz Hargrove wanted to hear.

There would be no layoffs at the Canadian plants of Chrysler when Cerberus Capital Management LP took it over, the co-founder of the secretive private equity fund told the president of the Canadian Auto Workers union.

"He made it very clear that they weren't in it to cut and slash and run," Mr. Hargrove recalls. "He talked about Chrysler being an icon and he said American icon."

The never-shy Mr. Hargrove did correct the new boss on one point: "We said, North American."

At that meeting in May, 2007, at Chrysler's head office in Auburn Hills, Mich., the union leader also laid out for Mr. Feinberg all the negative forces bearing down on the third-largest Detroit auto maker. "I remember him saying he hoped it wasn't as bad as I was saying."

As it turned out, Mr. Hargrove was right. Chrysler had long since lost its way. But Mr. Hargrove never again spoke to Mr. Feinberg, and never got a chance to say "I told you so."

Neither Mr. Hargrove nor Mr. Feinberg could have imagined that two years on, Chrysler would be filing for bankruptcy protection while entering into a shotgun marriage with Italian auto maker Fiat SpA and surviving only on the good graces of its largest union and the Canadian and U.S. governments.

The beginning of the end for Chrysler and the undoing of one of America's signature companies dates back to 1998, in what was billed as a merger of equals between Chrysler Corp. and Daimler-Benz AG. The deal was proclaimed an automotive "marriage made in heaven" by Daimler chairman Juergen Schrempp and seemed to represent a new chance for Chrysler to stride boldly on to the world stage from its North American perch.

Almost from the outset, the merger put an end to Chrysler's independence and stifled the nimble, brash culture that had made it one of the most profitable car companies in the world.

The decade-long struggle to restore this icon, which wound up in a Manhattan courtroom yesterday, highlights the risks of merging two car companies with far-flung operations and disparate cultures.

Chrysler's downfall was not so much about shoddy cars and overpaid workers. It was a slow motion car crash, a wreckage years in the making.

As auto makers seek to restructure amid a global collapse in sales, Chrysler's saga illustrates the perils of life-saving deals — a challenge that has doomed similar efforts.

The saga provides an especially stark warning for the company's most recent would-be saviour, Fiat chief executive officer Sergio Marchionne.

Mr. Marchionne has captured his North American prize, saving Chrysler from liquidation, but is also kicking the tires at General Motors Corp.'s Adam Opel AG subsidiary in Europe.

The ambitious, Canadian-educated industrialist is now gearing himself up to take on a key role in the global consolidation.

If he does the Opel deal, however, he risks repeating a key mistake made by Mr. Schrempp. Not long after the Daimler-Chrysler marriage was consummated, the chairman of the newly created giant turned his attention to the next project, which was the failed attempt to purchase Nissan Motor Co. Ltd. He left the integration of the luxury Mercedes-Benz and the mass-market Chrysler to underlings on both side of the Atlantic Ocean, many of whom, sources say, were opposed to the merger in the first place.

Yesterday, in language eerily similar to Mr. Schrempp's comment about an automotive marriage made in heaven, Mr. Marchionne told an Italian newspaper that he thinks of Opel as Fiat's "perfect partner."

THE DREAM TEAM

For decades, Chrysler has been a boom-and-bust car company.

The Chrysler that was granted bankruptcy protection on Thursday after losing $16.8-billion (U.S.) last year is a shadow of the auto maker that roared through the 1990s, cranking out hit new vehicle after hit new vehicle, generating cash and racking up profits.

The company moved out of a decrepit head office near downtown Detroit to suburban Auburn Hills, Mich., with a future seemingly as bright as the view from the 15th floor windows of the leafy campus.

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