Chrysler's Comeback

Only a year ago, Chrysler Corp. was the sick man of Detroit's auto industry. The plunge in car sales hit the company so much harder than GM or Ford that there was serious talk of bankruptcy. Chrysler's huge inventories of unsold cars were reduced dramatically by a desperate, carnival-style rebate scheme that was reluctantly picked up by competitors. A furious cost-cutting program resulted in layoffs of 20,000 salaried employees, who joined an army of assembly-line workers already on furlough. Still, the losses mounted, and last summer Lynn Townsend resigned after nine years as chairman. In October, he was succeeded by John Riccardo, 51, an accountant by training.

Last week a beaming Riccardo reported that he had restored some measure of health to the nation's third largest automaker. True enough, the company suffered a record net loss of $259 million for 1975, $27.7 million of it during the fourth quarter. But the last three months were in the red only because Chrysler incurred losses of $62.6 million on the sale of its Airtemp air-conditioner division. For the first time in five quarters, the company earned a profit (of $34.9 million) from its automotive operations. Riccardo predicted a net profit in each quarter of 1976, and Wall Street seemed to believe him. Investors bid the price of Chrysler stock as high as $19 a share, $3.37 above the previous week's close, before profit taking trimmed it to $17.88 at week's end.

There were solid underpinnings for the bullishness. Earlier in the week Chrysler completed the sale of Airtemp to Fedders Corp. Long a drag on profits, Airtemp had run up losses of about $35 million since 1971. The sale was the second coup pulled off by Riccardo and his deputy, President Eugene Cafiero. Last fall they threatened to close Chrysler's beleaguered British subsidiary and add to Britain's grim unemployment picture. Prime Minister Harold Wilson angrily complained that his government had "a pistol at its head." But he eventually came up with $325 million to rescue the subsidiary, which lost $35.5 million during the first half of last year, and keep it operating for another four years.

The new management team is making its weight felt in other ways. Domestically, Chrysler slashed inventories by $384 million last year, and has cut total bank debt by nearly $300 million. The company now finds itself in running trim, confident that it can recapture its share of the auto market, which slipped from 16.6% to 14.9% in 1975.

Moderate View. At one time criticized for catering to an amorphous market, Chrysler now seems to have found its niche in intermediates and compacts. The Cordoba, introduced under Townsend last year, was an instant success; it was followed by Volare and Aspen, both aimed at small families. These cars now account for about half of Chrysler's sales, which were up 20% from a year earlier through the first 20 days of February. Next year the company will enter the subcompact field with a front-wheel-drive auto modeled after Chrysler France's highly praised Simca 1307/1308. The company has agreed to buy from Volkswagen up to 300,000 four-cylinder engines and 120,000 front axles for its new subcompact, thus saving $100 million in tooling costs.

Though Riccardo is confident that Chrysler has turned the corner, he is making only modest predictions about the future--and with good reason: Chrysler has long been a boom-and-bust company, and bankruptcy talk has been around before. Says the chairman: "The aim of this management group is to put ourselves in the kind of financial, operating and marketing shape so that as the industry goes through these cyclical fluctuations, we will be relatively no worse off than anyone else." For the industry, he foresees a return to 1973's record level of car sales (11.5 million) by the end of the decade; for Chrysler, a steady strengthening quarter by quarter rather than spectacular gains. One reason for the moderate view: Chrysler has paid no dividends on common stock since the third quarter of 1974 and it will have to earn a lot of profit--about $200 million--before its bankers will let it give common shareholders anything.

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