Peter Robison and Jeff Green | April 19 (Bloomberg) -- The same day investor Kirk Kerkorian offered $4.5 billion for money-losing Chrysler Corp., a car salesman in Southold, New York, dusted off a framed print.
``Time to hang this up again,'' Chrysler dealer Dick Mullen said on April 5, smiling at the editorial cartoon from the 1980s. It shows a car bursting from the ground beneath a gravestone marked ``Chrysler: R.I.P.''
Mullen's 80-year-old shop on Long Island's northeast corner is a microcosm of the rise, fall -- and stubborn survival -- of Chrysler through decades of miscues. Mullen loaned Chrysler $10,000 when it neared bankruptcy in 1980. As an auction by German parent DaimlerChrysler AG clouds Chrysler's future once more, Mullen is unafraid, leavening the wait with gallows humor.
``It's the fourth time I'm going out of business with you guys, I'm getting a little tired of it,'' Mullen, 70, says he told Chrysler sales chief Steve Landry at the New York Auto Show on April 4. Mullen suggested that Chrysler write a book based partly on his up-and-down ride and pass it out to future executives.
``Most of our dealers have faith, and they know that whatever happens, our brands and products are not going anywhere,'' Landry says, confirming the conversation. The sales chief says he's meeting with as many as 50 dealers this year to answer questions and mend relationships.
Surveying the fortunes of Mullen and his fellow car dealers on Long Island, it's hard to miss the larger themes: The rise of Japanese carmakers with a single-minded focus on reliability; the overdependence of U.S. makers on big cars and trucks at the expense of basic, fuel-efficient sedans; and their inability to stem price competition among competing dealerships.
Rocky Marriage
Chrysler has been a ``Big Three'' U.S. automaker alongside General Motors Corp. and Ford Motor Co. since 1929, yet it's rarely been secure.
The Auburn Hills, Michigan-based automaker pushed gas guzzlers just as the 1970s oil shocks changed buying habits. Chairman Lee Iacocca only averted bankruptcy with $1.5 billion in government-guaranteed loans. After a revival behind the compact K-car and the minivan, the U.S. automaker embarked in 1998 on a rocky, $36 billion marriage with Daimler, maker of the Mercedes.
Prosperity from hit cars gave way to financial crises -- in 1962, 1974, 1980, 1992, 2000 and again last year. A $1.5 billion loss at the Chrysler unit prompted its German parent to investigate a sale, and Chrysler surrendered the No. 3 slot in U.S. market share to Toyota Motor Corp. Dodge trucks, minivans and Jeeps account for 70 percent of Chrysler's sales at a time when gasoline costs close to $3 a gallon in the U.S.
Price Discounts
Mullen has weathered every storm. He and his father each bought $10,000 of Chrysler's debentures in 1980, earning 11 percent interest a year. Their Chrysler dealership was the first in the U.S. to sell Jeeps after the company bought American Motors in 1987. Mullen met Iacocca twice. Later, he was among a handful of dealers invited to lunch at New York's Waldorf Astoria hotel on the first day on the job for Iacocca's successor, Robert Eaton, in 1993.
Daimler bought Chrysler intending to gain a mass-market American foothold. It has struggled because of price discounts and union retiree costs that add $1,300 to the price of each car. Now, with record fuel prices dimming demand for Chrysler's hottest sellers, some investors see the outlook as even worse.
``When the product cycle turned, the ugly really outweighed the good,'' says Tim Gilbert, who helps manage $110 billion in assets, including DaimlerChrysler bonds, at Principal Global Investors in Des Moines, Iowa. He says the firm is adding bonds of the Stuttgart, Germany-based carmaker because it should be more stable if it sells Chrysler.
DaimlerChrysler shares have jumped 27 percent since it said Feb. 14 that ``all options'' are on the table for Chrysler.
`Don't Mention It'
The only public bidder is Kerkorian, a Los Angeles-based investor in casinos and movie studios whose $21 billion hostile offer for Chrysler was rebuffed in 1995. Canadian auto-parts maker Magna International Inc. has said it is exploring a bid. The New York private-equity firms Blackstone Group LP and Centerbridge Capital Partners LP made a joint bid while Cerberus Capital Management LP also is interested, people familiar with the talks have said.
So far, Mullen says, publicity about a sale isn't hurting business. ``A lot of people don't mention it,'' he says, clasping his hands in prayer. ``I just hope they (Daimler) don't make too much of a circus out of it.''
``They always seem to be at their best when times are worst,'' Mullen's son, Rich, says of Chrysler. Rich, 45, and his brother Billy, 37, run the dealership day to day. Together, they have five children, and Rich says at least one of those kids will likely end up taking over the shop.
Oldsmobile Dreams
``Chrysler dealers are survivors,'' Dick Mullen says. His sales have stayed at 400 to 450 vehicles a year for the past decade.
By contrast, Mullen's friend Irwin Garsten, a Honda Motor Co. dealer in nearby Riverhead, sells the same number in a typical quarter. Garsten used to own a Chrysler dealership. He surprised Mullen and other local dealers at a dinner in 1975 when he told them he'd secured the Honda franchise.
``The guys all hee-hawed me,'' says Garsten, 77. At the time, Honda's top seller was the Civic hatchback. As Honda's lineup expanded, his Chrysler dealership waned. Garsten sold it in 2000; at least two other Long Island Chrysler dealers and three GM Pontiac dealers dropped their American brands to sell Hondas, he says. Garsten says he is selling 150 to 170 Hondas a month -- four times what Mullen sells.
Sales by Phone
``I dreamed of being an Olds dealer,'' recalls Ted Lucki, another dealer of Japanese cars in Riverhead. GM's Oldsmobile Cutlass was a top seller when Lucki co-owned a Ford dealership in the 1980s. In 1993, he landed a Toyota franchise, betting that imported cars would do well at times and domestics at others.
Now, he is selling 150 new Toyotas a month, compared with 60 at the Ford dealership. Buyers with Wall Street jobs in New York often buy Camry sedans over the phone because they want a reliable car for their elderly parents, Lucki says.
``Twenty years ago, the conservative buy was the Oldsmobile Cutlass; 10 years ago, it was the (Ford) Taurus,'' Lucki says. ``Now it's the Toyota Camry. Chrysler's not even on that list for a car. If you're Detroit, I don't know how you get that back.''
Dealer Network
And while the U.S. automakers' share of the market has shrunk, they haven't managed to force equivalent cuts to their dealer networks. Many independent dealers remain in less- desirable demographic areas. The average Toyota dealer sold 1,821 vehicles in 2006, compared with 378 at a typical Dodge dealer, according to figures compiled by Automotive News.
``We built the church for the Easter crowd,'' says Tom Barenboim, a Chrysler dealer in Methuen, Massachusetts, who complains that his stiffest competition comes from six other Jeep dealerships, all within 10 miles (16 kilometers). ``That's sad.''
Landry says Chrysler has ``never been shy'' about wanting to shrink the number of dealers and recently expanded a consolidation plan from big cities into smaller markets. Chrysler has about 3,700 dealerships in the U.S., down from 4,300 in 2001. Landry wouldn't be more specific about when and where further cuts might come.
Started in 1927
Mullen's shop has long had one geographical advantage: It occupies a two-lane road on a narrow stretch of Long Island's North Fork, about 25 miles (40 kilometers) from the big dealers in Riverhead.
Mullen's father, Richard F., started the business on April 2, 1927, taking over a two-story brick building that had been used to repair wagon wheels. It was a service station at first. Mullen says his father sold gasoline and fixed cars. A local Oldsmobile distributor was so impressed with one repair job that he awarded a dealership. Mullen Motors began selling Chrysler DeSotos and Plymouths when the distributor switched to those models in 1932.
After a stint in the Army, Mullen returned to Southold to work alongside his father selling Chryslers in 1958. That first year they sold 29 cars and made $6,000. ``We thought we were millionaires,'' he says.
Toyota, based in Toyota City, Japan, had entered the U.S. market only the previous year, exporting the Toyopet Crown car. By 1962, when Detroit-based GM's share of the U.S. market peaked at 51 percent, Toyota's was 0.02 percent. Dearborn, Michigan- based Ford had 27 percent, while Chrysler had 9 percent.
Hometown Connections
Mullen Motors plays up its hometown roots in Southold (population 20,000), where white clapboard houses often display American flags. Surrounded by wineries and tree farms, the town is a haven for doctors, lawyers and other professionals, says town historian Antonia Booth. The median income was $49,898 in 2000 and the median home cost $540,000 as of April 2006.
Mullen's tiny showroom on Main Street -- cramped, with only two cars displayed indoors -- has wood-paneled walls, metal filing cabinets and a black-and-white photograph of his father. Even rivals rave about his service.
``He's a legend,'' Lucki says. While other dealers might send a tow truck to fetch a broken-down car, Mullen would be on the truck. ``I especially liked to do it on a Sunday morning for a doctor,'' Mullen jokes.
Sound View Inn Hotel owner Jack Levin, 98, estimates he's bought 50 Chryslers from Mullen Motors. At one time, all six members of Levin's family drove Plymouths, says his daughter, Rachel Murphy, 50, who helps manage the hotel on Route 48 in nearby Greenport. She still drives a Dodge Durango, though she says it's her least favorite Chrysler because the brakes and heater haven't been reliable.
Birth of Rebates
``It's the small-town attitude,'' she says of why she stays loyal to Mullen. ``I go in, and everybody says hello.''
Mullen readily volunteers that support from local buyers may have kept him viable all these years. ``I had people buying cars from me when I wouldn't have bought them,'' says Mullen, who drives a 1996 Jeep Grand Cherokee.
For much of its history, Chrysler has been the scrappy No. 3 to GM and Ford. The Plymouth Valiant was an economical alternative to other midsized cars, while Chrysler burnished a reputation for engineering with the Hemi V-8 engine and so- called muscle cars like the Dodge Charger. Chrysler pioneered the minivan with the Caravan.
Oil Crisis
The troubles began when Chrysler invested in an all-new lineup of full-sized cars in 1974, the year of the first oil crisis. Honda's tiny Civic drew buyers that included the billionaire Malcolm Forbes. In a Super Bowl commercial in 1975, Chrysler pitchman Joe Garagiola offered $200 cash back to anyone who bought a new Dodge Dart or Plymouth Duster. ``Buy a car, get a check,'' he said.
It was the opening salvo in the war of auto incentives. By 2003, automakers in the U.S. would spend more than $55 billion on incentives, exceeding their product-development budget, according to CNW Marketing Research Inc. in Bandon, Oregon.
Mullen remembers people lined up outside his shop as he turned the key the Monday morning after the Super Bowl. ``Who knew?'' he says. ``That really worked. We trained the market to buy cars with incentives.''
Chrysler survived with the help of the 1980 government bailout and Iacocca's sales job. ``If you can find a better car, buy it,'' Iacocca said in commercials appealing to American patriotism. ``He saved us,'' Mullen says. Mullen pitched in, too, extending the loans and later agreeing to take 28 Chrysler sedans he didn't need.
Iacocca Regret
``I was afraid to tell my father,'' Mullen recalls. The senior Mullen died in 1993, at age 90.
Daimler completed its takeover in 1998, dismaying some American union leaders and politicians. Iacocca, who participated in Kerkorian's earlier takeover attempt, called it a betrayal.
``I'll always believe that if I hadn't chosen Bob Eaton to succeed me as chief executive at Chrysler, it would still be a strong, profitable American car company,'' Iacocca, now 82, wrote in his new book ``Where Have All the Leaders Gone?'' published this week. He declined to comment for this story. Chrysler has no contact information for Eaton, who resigned as chairman of DaimlerChrysler's board of management in 2000.
`Overproduction Causes Problems'
Mullen says Eaton may have been smart to sell when Chrysler was riding high. He was less happy last year, when Chrysler's production outstripped demand. Mullen and other dealers were stuck with unwanted vehicles. It gave Mullen the idea for his book, which he says would have a single theme: ``Overproduction causes problems.''
Landry says he's aware dealers were upset and that is why he's meeting with so many of them this year.
To Mullen, the most perplexing thing about the potential sale is that Chrysler cars have never been better. The Crossfire sports car shares 40 percent of its parts with Mercedes, including the engine. The Chrysler 300 uses the same axles and transmission as the Mercedes E-Class sedan.
Chrysler is narrowing the quality gap with Toyota. In 2006, the average new Chrysler had 12 percent more problems than a typical Toyota, according to researcher J.D. Power & Associates in Westlake Village, California. That was better than the average industry gap of 15 percent and an improvement from the 22 percent Chrysler managed in 2000.
Older Generation
Analysts such as John Wolkonowicz of the research firm Global Insight Inc. in Lexington, Massachusetts, still aren't optimistic about Chrysler's future. He says the buyers that drove Chrysler's turnaround were the World War II generation born from 1915 to 1934. Mullen saw their patriotism firsthand; a World War II veteran once chewed him out for selling a Chrysler without mentioning it had a Mitsubishi engine.
That generation is dying. The Baby Boomers born from 1946 to 1964 rebelled by buying imports like the Volkswagen Beetle.
Succeeding generations have different associations of U.S. automakers: Ralph Nader's 1965 expose ``Unsafe at Any Speed,'' about their resistance to safety features; the interchangeable sedans they churned out for rental-car fleets in the 1990s; and the controversy in 2000 over Ford Explorer rollover accidents.
Edward Smith, 78, and wife Joan, eating lunch at a restaurant next to Mullen's shop, say they've driven American cars like the Buick, Lincoln and Mercury since they married in 1953. Still, they recently advised their daughter to get rid of her GM-made Chevy Suburban for a Hyundai Santa Fe sport-utility vehicle. A dealer told her the Chevy's pinging noise after 70,000 miles was ``inherent to the motor,'' Edward says.
Toyota Equals Wal-Mart
Toyota had 15.4 percent of the U.S. auto market in 2006, compared with 14.4 percent for Chrysler, 17.5 percent for Ford and 24.6 percent for GM.
Lucki, the Toyota dealer, compares Mullen's shop to the corner delis and independent grocers he grew up with in upstate New York. Many of them gave way to giant superstores run by Issaquah, Washington-based Costco Wholesale Corp. or Wal-Mart Stores Inc. of Bentonville, Arkansas.
``Dick Mullen's an independent grocer,'' Lucki says. ``And now we have Costco. Toyota is Costco.''
His Toyota showroom couldn't be more different than Mullen's shop. It is spacious and glass-walled, comfortably accommodates seven cars, and has a computer station and a row of offices for private meetings. There is only one hint of Japanese culture: A Samurai sword in a glass case, obscured behind a filing cabinet in a corner of the shop. Lucki plans to double the dealership's size, to 40,000 square feet (3,700 square meters), within a year.
Dick Mullen says Chrysler will survive. Yet he recognizes he's something of a historical oddity, having remained a small- town dealer. That isn't the dealership model Chrysler is encouraging as it competes against Toyota's mega-shops.
``Down the road, dealers like me are not long for this world,'' Mullen says. ``That's the trouble.''
