Some have said the F caused chrysler to fail in the 80-s, I never bought into that myself or the lower sales numbers for the f-s in 78-79-80 as many outside factors played in. But opinions vary.
What Led to Chrysler's Bankruptcy and Downfall?
Looking back, there is no single factor that drove Chrysler to the brink of bankruptcy. However, when you combine all of the factors together, it becomes clear how the company fell into such a desperate situation over time.
Key factors that led to the company's near-bankruptcy include:
- High Gas Prices: During the 1970s, Chrysler was affected by two major spikes in the price of oil and gasoline. This created a chain reaction as many consumers cut back on the purchase of big-ticket items such as cars, while those who were in the market for new ones simply went to Chrysler's Japanese and German competitors, which offered more fuel-efficient cars that could accommodate their already tight budgets in a major energy crisis. This contributed to falling sales at the automaker.
- High Interest Rates: High energy prices helped contribute to high inflation, which forced the Fed Reserve to raise interest rates to fight spiraling costs. The more interest rates rose, the more the economy slowed and the more expensive it became to obtain financing to purchase a new car. The high interest rates and a slow economy caused many consumers to simply put off their automobile purchases until later on.
- Falling Automobile Sales: With high gas prices and high interest rates, the inevitable started happening at Chrysler: falling sales. While its competitors, Ford (F) and General Motors (GM), were affected as well, they were much larger and were better able to withstand a fall in sales compared to Chrysler.
- Types of Vehicles Sold: In 1979, Chrysler specialized in making large cars, vans, and recreational vehicles. As oil and gas prices rose sharply, many consumers purchased the more fuel-efficient cars that were produced by their competitors. A second problem that Chrysler had in this area was that, unlike its competitors, Chrysler would produce automobiles on speculation versus building the cars as the orders were received by the dealers. Since Chrysler's dealers were having trouble selling the company's inefficient cars, this led to an inventory build-up on Chrysler lots. (Read about the importance of inventory levels.)
- Downgraded Debt: With the massive amounts of unsold cars and dropping sales, many credit rating agencies downgraded the company's debt. This meant that in order for them to raise money, they either had to pay more interest on any debt to keep the company running or simply be unable to raise additional funds in the markets. Chrysler chose not to raise funds in the public markets, meaning that they had to make what little working capital they had onhand work for them. This created a situation where the company was losing vast amounts of money, and in the course of just six months, the company went from $1.1 billion in working capital to just over $800 million. Analysts were worried that the company's working capital could drop to $600 million, violating its credit management with 180 banks, and put the company in default.
- Heavy International Competition: After the end of World War II, the American automakers were the premier car manufacturers in the world. However, in the late 1960s, Germany and Japan started to aggressively market cars in the United States. The types of cars that they made were generally perceived to be of better quality and more fuel-efficient than American cars. As the cost of oil and gasoline rose sharply, many consumers decided that they would rather own the more fuel-efficient cars as opposed to gas-guzzling American cars. Chrysler found its sales dropping as many buyers went to foreign competitors to buy the cars they were looking for. This meant that Chrysler was left with unsold cars that consumers no longer wanted to buy.
The Ford pinto for contrast of a recall cal and sales trends, the exploding mini cars, huge recall still had outstanding sales numbers for ford. Id consider the Pinto recall substantially more significant the then F fender recall as many lives were lost. But look at the later years sales numbers, alot of outside factors throughout the time period.
Fuel tank controversy
Controversy followed the Pinto after 1977 allegations that the Pinto's structural design allowed its fuel tank filler neck to break off and the fuel tank to be punctured in a rear-end collision, resulting in deadly fires from spilled fuel.
Design flaws and ensuing lawsuits
The Pinto's design positioned its fuel tank between the rear axle and the rear bumper. In a crash, the filler neck could tear away from the tank, spilling fuel beneath the car. The tank itself could also be punctured by the protruding bolts of the differential.
The National Highway Traffic Safety Administration investigated complaints about the Pinto's fuel tank safety as early as 1974, taking action in 1977 — after an article in
Mother Jones. The article said that Ford was aware of the design flaw, was unwilling to pay for a redesign, and decided it would be cheaper to pay off possible lawsuits. The magazine obtained a cost-benefit analysis that it said Ford had used to compare the cost of repairs (Ford estimated the cost to be $11 per car) against the cost of settlements for deaths, injuries, and vehicle burnouts . The document became known as the
Ford Pinto Memo.
An example of a Pinto rear-end accident that led to a lawsuit was the 1972 accident resulted in the court case
Grimshaw v. Ford Motor Co., in which the California Court of Appeal for the Fourth Appellate District upheld compensatory damages of $2.5 million and punitive damages of $3.5 million against Ford, partially because Ford had been aware of the design defects before production began but had decided against changing the design. The incident, and the Ford Pinto Memo in particular, has continued to be cited and debated as a major case in the study of business ethics.
Recall
The National Highway Traffic Safety Administration (NHTSA) ultimately directed Ford to recall the Pinto. Initially, the NHTSA did not feel there was sufficient evidence to demand a recall due to incidents of fire. 27 deaths were attributed to Pinto fires (the same number of deaths attributed to a Pinto transmission problem) and in 1974 the NHTSA ruled that the Pinto had no "recallable" problem.
In 1978, Ford initiated a recall providing a plastic protective shield to be dealer-installed between the fuel tank and the differential bolts, another to deflect contact with the right-rear shock absorber, and a new fuel-tank filler neck that extended deeper into the tank and was more resistant to breaking off in a rear-end collision.