Der Sturm (The Perfect Storm)
Conversations at the time with Jac Nasser at Ford, Rick Wagoner and Jack Smith at GM, and even Chrysler's then-vice chairman Bob Lutz, brought little agreement about an impending industry slide. Times were too good and the companies were making far too much money. There was a profound reluctance to acknowledge the possibility of a diametric opposite of the current state of affairs.
Even some auto company economists who were queried then saw little but a perpetuation of good times for the foreseeable future. The industry, it seemed, had finally overcome the pattern of cyclical peaks and valleys that had plagued it for decades.
The events of recent weeks may prove a vilified Eaton had been more astute than he was ever given credit for being.
For close to a decade, the auto industry had been thriving on low cost leases to spur sales figures. But those leases came with a hidden cost. By assigning an estimated value at the end of the lease that was absurdly higher than the residual value realistically should have been, the auto companies were taking a huge gamble. They anticipated they would not take a loss on the vehicle when it was returned in two or three years.
At Whatever Cost
But this practice lead directly to an average deficit of about $2,800 in the market value of each vehicle coming back from a lease, based on internal information. This created an industry shortfall presently approaching half-a-trillion dollars. And unlike its crosstown competitors Ford Motor Co. and General Motors Corp., which started what became an unbreakable cycle, Chrysler did not have the ability to spread its costs around the world.
In addition, Chrysler still owned much of the light truck market, with its much-in-demand Jeeps. Competitors, particularly imports, had not yet caught up, but were running hard to get there.
It was a case of the industry borrowing from the future, and, for Chrysler, Eaton saw that the future was here.
Echoing a Critical Past
The spectre, at the time of his decision to implement a "merger of equals," might be compared with the problem faced by Admiral Chester Nimitz of the U.S. Pacific Fleet just prior to the turning-point Battle of Midway during World War II.
Nimitz was faced with an agonizing decision that could shorten rather than prolong the conflict in the South Pacific - but only if he made the right choice.
His decision was to go with the best intelligence available, but without knowing his enemy's superior strength, and commit the entire fleet to a battle that had it been lost would have opened the West Coast of the United States to an invasion by Japanese forces.
The invasion of the United States by a united DaimlerChrysler has been no less traumatic within the wars of corporate takeovers. And it has become obvious since the time it was started that for Eaton it was not the right choice.Now or return to Top or visit the Archives
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