Chrysler (Fortune 1935)

September 29, 2013: 10:36 AM ET

Editor's note: Every Sunday Fortune publishes a favorite story from its magazine archives. This week we turn to a 1935 article about Chrysler, which earlier this week filed for an initial public offering as it emerges from Chapter11 bankruptcy four years ago. The automaker, founded in 1925 by Walter Chrysler, still has a number of serious challenges ahead as it continues to merge its operations with those of Italian-based Fiat SpA. It's uncertain what might happen next, but it's worth taking a look back at how Chrysler began.

Chrysler means Number Three Corporation, Number Two Personality, and the first manufacturer in the automotive field to raise its rate of production above its figures for the great boom year 1929.

chrystler-classic-1_300The  modern corporation has obvious resemblances to a Greek divinity. Not only is it immortal and invisible but its antecedents are odd. The intangible nymph whose parents were girl and sea water is like nothing so much on earth as the impalpable legal entity of which one ancestor was a devout Baptist and the other a can of kerosene. The Chrysler Corporation too has its share of preternatural attributes. Of its ancestors of record one was a large, tough, willful ex-railroad hand with an acquisitive mouth; one was a sleek, slick sweetheart of a high-compression motor with aluminum pistons and a hectic kick; and one was a lamentable investment in an injudicious loan.

The ex-railroad hand was Walter Percy Chrysler of Wamego, Kansas, whose father had been a locomotive engineer on the Union Pacific and whose father's fathers before him had been respected if undistinguished citizens of Kent County in Ontario. Walter Chrysler, in 1920 at the date of the miraculous birth, was Executive Vice President of Willys-Overland at $40,000 a month, having risen to that eminence from a five-cent an-hour engagement in a U. P. shop with a long series of railroad jobs, a master mechanic's job at Great Western, the presidency of the nascent Buick Co., and the executive vice presidency of General Motors in between. He was forty-five years old.

His English was not so much the king's as the shop foreman's. And he was the No. II production man in the automotive industry.

No. I was Henry Ford.

The high-compression motor was the product of the ingenuity of an automotive designer named Fred M. Zeder who, at the date in question, was the thirty-four-year-old chief engineer at the Elizabeth, New Jersey, plant of Willys-Overland, having been brought to that point in space and time by Walter Chrysler. It was reputedly the best automobile motor of its day and many of its first examples are still running. The in judicious loan was a loan made to the decaying Maxwell Motor Co., Inc., by a syndicate including a youngish New York financier named James Cox Brady, son ·Of that Anthony Nicholas Brady who started life as cashier in the Delevan House barbershop in Albany and ended it as a guest in the Hotel Carlton in London. The loan amounted to some $25,ooo,ooo and the Maxwell corporation, with 26,000 unsold and apparently unsaleable cars, was not thought likely to repay it.

chrystler-classic-18_300The collision of these three disparate and unrelated forces was the result partly of financial chance, partly of human purpose. The element of chance was contributed by the bankers. It so happened that the engagement of Mr. Chrysler at Willys-Overland had been· made at the suggestion of Willys-Overland's bankers who found in the year 1920 that they had advanced that corporation a total of some $46,ooo,ooo. It further happened that Willys-Overland's bankers were, to all intents and purposes, the same bankers, including always Mr. Brady, who had made the lamentable loan to Maxwell. When, therefore, Chrysler succeeded in reducing the $46,000,000 indebtedness of Willys-Overland to $18,000,000 in a matter of a few months, nothing seemed to the bankers more plausible than that he should accomplish the same miracle at Maxwell. And they so proposed.

The element of human purpose was contributed by Mr. Chrysler. Mr. Chrysler had long -had it in the back of his head to manufacture automobiles on his own. Years before in 1905 when he was thirty years old he had taken $700 of his savings, borrowed $4,300 at the bank, and bought a $5,000 car at the Chicago Automobile Show in order to take the contraption apart and find what made it go. And now in 1920 at the age of forty-five he proposed to put his knowledge to account. He was not himself a designer of motors. But he had, in Zeder, a man who was. And, with Zeder, he had an idea. It was a mechanic's idea: not a salesman's. It was that kind of idea a fifteen-year-old boy of a mechanical turn of mind might play with on his way to sleep. But for that very reason it was an engrossing and exciting to a man who had been master mechanic on the Great Western and works manager of American Locomotive. It was Mr. Chrysler's notion that he would build and sell a miniature masterpiece: a seventy horsepower marvel which would give to the American public for $1,500 the thrills of speed and power until then reserved for the man who could afford to pay $5,000.

When therefore the bankers through James Cox Brady proposed to their Willys Overland expert that he should add to his labors at Elizabeth the labor of pulling their Maxwell chestnuts from the coals they talked to a man with a project of his own. And the resultant agreement showed it. Mr. Chrysler undertook to save the bankers' hides on a condition. The condition was this: that Maxwell should be reorganized and that the bankers, already hooked for $25,000,000, should make available to the reorganized corporation $15,000,000 of new money. At any time and under any circumstances the suggestion would have been highhanded enough. In 1920 with a depression gathering headway it was pure effrontery. It was accepted.

The consequence was a friendly receivership and a lengthy legal dicker rendered difficult by the fact that Maxwell had for some time been operating the Chalmers Motor Corp. under a lease and had hatched in the process a complicated intermanagement dog fight too legalistic for further notice here. The upshot of the whole thing was a relatively simple organism. Chalmers became a go per cent owned subsidiary of Maxwell and eventually ceased to function. The bankers' syndicate received 150,000 shares of Class A stock and 40o,ooo of Class B in the new corporation. And the old obligations were retired with cash and notes. But the legal campaign, critical though it was, was only half the battle. There were also the 26,000 unsaleable cars to sell.

chrystler-classic-19_300To that problem, Chrysler, shuttling between his Executive Vice President's office at Willys-Overland and his Chairman's office at the Maxwell plant in Detroit, addressed himself. The trouble with the cars was, generally speaking, that they were no good. More specifically the trouble was that their rear axles had a way of sagging on the street, spilling the differential into the nearest gutter. The cure for the specific malady was simple. Two trusses held the differential up while a radical sales order brought the prices down to meet it. The doctored cars were sold' at a $5 profit in order that they might be sold at all. But the cure for the general difficulty was not so lightly to be found. The Maxwell car was neither a good car nor was it the car Chrysler had proposed to build. And the corporation, it was quite apparent, could not go on for any length of time selling its automobiles at a profit of $5 per. All that bad really happened as 192 r-drew to an end was that Maxwell creditors had been accommodated and that 26,000 assemblages of steel rubber, and wood had been transferred from inventory to cash.

chrystler-classic-5_300 It is not un-instructive to focus, with the advantages of hindsight, upon the dilemma of Walter Chrysler in that year. To all in-tents and purposes he had his corporation:the change of name from Maxwell to Chrysler which followed four years later was nothing but a change of name. His corporation however was a corporation fresh from a receivership and still deep in debt, with a huge block of its stock in the hands of its bankers. And not only was his corporation in a perilous way but the world in which his corporation found itself was a perilous world. Competition in the automobile business was no longer sharp: it was all but mortal. Of the approximate hundred of car manufacturers who were members of the National Automobile Chamber of Commerce in that year all but twenty-seven-were destined to disappear (and seldom by the painless death of merger) before the year 1934. As compared with the debut of Ford, who entered the field when the area to be occupied was expanding with every season, the debut of Walter Chrysler was unpromising indeed. Ahead was the notorious specter of saturation. And on both sides, elbowing away at the narrow opportunity which remained, were the gigantic shapes of Ford and General Motors. Chrysler was born too late to grow up with the industry. All the could hope to do was to grow up against it. Had he not succeeded every scrap of evidence would have proved that no one could.

In a sense therefore the Chrysler story is the usual success story of American business: insuperable obstacles, superhuman doggedness, eventual triumph, and all the rest of it. But only in a sense. Two of the parents of the Chrysler corporation-the ex-railroad hand and the injudicious loan-had collided by 1920. But the third parent, the high compression motor, had not yet appeared. And nothing that Chrysler could do beyond the communication of his dream of a lower priced, seventy-horsepower car could bring it into being. Zeder had been building models at Willys and was also at work in his own shop on a model for Chrysler himself. But models are not cars. And Chrysler badly needed cars. By 1922 his Maxwell sales were up to 48,8so, an advance of 14,000 over 1920 largely gained by the simple expedient of dolling up the bodies. But the resultant $2,000,000 net was cut in half by Chalmers's losses. And meantime wholesome but overwhelming disaster had befallen the books in the person of B. E. Hutchinson, thirty-three-year-old ex-cinder snapper in his father's Chicago tack factory, ex-chief engineer of a London open-hearth furnace company, ex-auditor with Ernst & Ernst, ex-Treasurer to the AmericanWritingPaper Co., who had capped a career of open-ended opportunism by joining Maxwell as Treasurer in 1921. It was Mr. Hutchinson's earnestly held idea that the inventory was $11 ,000,000 too high. And with $1,000,000 written down and out; the capital position, shaky enough at best, was seriously impaired. Not even the new Treasurer's astonishing success in persuading the banks to provide an open line of credit amounting to $12,000,000 could restore the old, but false, security. Only profits would do that. And profits presupposed a selling car.

chrystler-classic-6_300It was at this point, in other words, that the boy's dream of a miniature Lincoln became no dream but an urgent necessity. Just how urgent it was may be seen in one circumstance. In the spring of 1923, two years after Chrysler's departure from Willys-Overland, bankruptcy overtook the company· and -the Elizabeth, New Jersey, plant was put up at auction. For that plant Chrysler instructed his agents to bid-not because he wanted the plant itself but because a model Zeder had made for Willys · during Chrysler's incumbency was to be sold with the factory and because the model was reputed to be the finest car unbuilt. Chrysler's bids were low, Durant secured the plant, and the model became the Flint car. Its later performances indicated that too much had been expected of it. But at the time the loss seemed serious and its effect was far-reaching: For it was in consequence of his failure to secure the Flint model that Chrysler finally decided to go ahead on the model Zeder had built for him. That model became· the car that bears his name. What followed was as dramatic a chapter of industrial history as has been written in our time. The manufacture of a new car requires financing. Its sale requires showing. And neither financing nor showing did Walter Chrysler have. The Automobile Show, which allots space on the basis of sales in the preceding year, would allot him none for his unmade Chrysler Six. And the bankers, two months before the 1924 New York Automobile Show was to be held, had let him down. Blair & Co., acting with Chase Securities, found that a conditional offer to take at 92 $6,000,000 of a proposed bond issue could not be carried out. These were serious difficulties. The second, indeed, was almost fatal since it threatened the last remaining vestiges of Maxwell credit. But there were other difficulties still. One was implicit in the physical car itself: the other in its price. The car was short having a wheel base of only 112 inches, and the price at which it had to sell was high, $1,565. Both were obstacles of importance, the first because a long wheel base was then supposed to be the sine qua no - of a comfortable ride and a noble car, and the second because the $ 1,565 price was the exact price o.f the seven-passenger Buick touring car with a wheel base of 128 inches. The two together therefore presented a formidable hazard. No one had ever attempted before to sell a short-wheel-base car for long-wheel-base Buick prices. It was at this juncture that Walter Chrysler showed his courage-or more precisely, perhaps, his nerve. He hired the lobby of the Commodore Hotel a few blocks from the show and wheeled his cars in. And he then took personal charge of the situation, standing guard to see that no one guessed out loud at the new car's wheel base and refusing for a week to name his price. When he did name it-when it had become evident that the miniature dreadnought had stolen the show and the time had come for orders-he wrote his figures on a card, handed them to Joe Fields, his sales manager, and walked away. He knew that Fields would say the car could not be sold.

The end was sweet as the beginning had been bitter. For days the bankers' men had circled through the lobby. When the crowd's reaction was made tangible in orders they came back. The first to come was Jules Bache. Bache suggested that he take $5,ooo,ooo worth of Maxwell bonds. At what price? Seventy. The answer was explicit-and not pretty. The next was Edward R. Tinker of Chase Securities. Tinker finally went to 94· Chrysler, remembering Blair & Co.'s 92 the fall before, was over willing- but he feared the offer might evaporate. Without $5,ooo,ooo then and there, signed and paid over, he was finished. How badly finished only he would ever know. But where another man would have been cautious out of fear Chrysler was rash. He followed Tinker to his bank, sent Hutchinson in to tell him to do business then or not at all, and stood in agony on the sidewalk for an hour and a half while Hutchinson traced Tinker to his barber's chair and got a promise. Chrysler's lawyers, Larkin, Rathbone & Perry, put in a sleepless night and the campaign was over. It is not merely paradoxical but also dramatically true that the subsequent history of the corporation was largely anticlimax. The real history of Chrysler, in other words, was written before Chrysler had been formed. To the continuing sales of the Maxwell Four, Chrysler in 1924 was able to add sales of 32 ,000 of the new Chrysler Six, and in that year the Maxvwell Corp., once given up for dead, made a net profit of S4, 11 5,ooo. Then, by a mere Hutter of legal papers, the Maxwell Motor Corp. became, in 1925, the Chrysler Corp. The Maxwell Four became the Chrysler "58," the Chrysler Six became the Chrysler "7o" (the figures were to designate the number of miles per hour the model could attain), and the name of Maxwell belonged to the automotive ages, along with those of Apperson and Haynes and Stanley.

Nineteen twenty-six saw Chrysler with four models-a "5o," a "6o," the original "70," and an Imperial ''So"-in fifth place in the industry whose umpires had refused admission to his Chrysler Six only two years before. And 1927, with sales of 192,ooo as against 32,ooo in 1924, saw Chrysler fourth. From any point of view and with full credit for the part played by the Coolidge boom ir was an extraordinary achievement. It is doubtless true that the Chrysler - the miniature "big" car, the toy monster had no such social value and no such influence on the community as the Model T-Ford. It was not the kind of car the country needed in the sense that the Model T was needed. But the Chrysler, it must be remembered, did not appear in the world that needed, and secured, the Ford. It appeared in the boom decade, in a period when desires had supplanted needs, in an era when a car which could give for $1,500 the "thrills" of a car of $5,000 was precisely what the people who could buy it would most wish to buy. It was the car of its age and in that fact lay both its strength and its weakness.

Nothing about Walter Chrysler is more curious than the fact that this defect of his creation became apparent to him some two years before that age had reached its catastrophic end. In 1928 while Chrysler sales were increasing at unbelievable rates he suddenly and unexpectedly luffed up into the wind and prepared to go about upon the other tack. The name of that maneuver is the Dodge Deal. Its objective was the enterprise which the brothers John F. and Horace E. Dodge had been building up since November, 19I4. The brothers Dodge had started their automotive lives making parts for Henry Ford to build into automobiles. They were sound and respectable and capable and unimaginative and the Dodge car reflected all their qualities. Yet as a car it had a personality second only to the personality of the Model T Ford. Over the years the brothers built up a dealer organization of formidable loyalty, gave it a sturdy car to sell, and basked in the resulting profits. In the days when a Cadillac engine purred and a Ford engine still rattled, the Dodge engine did neither: it chugged. The car it drove was small, black, unfashionable, and gadgetless, but so were the times in which it moved. The square-toed typography of the Dodge advertising reiterated the word "dependability" and Dodge owners knew it for more than a word. The Dodge sales technique was simple-a Dodge sold for roughly two more than the price of a Ford, whatever that price might be. And a nation which was once convulsed by Ford jokes looked upon the Dodge with the most profound solemnity.

Then in I920 the partnership of John and Horace Dodge was broken by the death of John. Horace survived him only eleven months, so that by December, I920, .the founder management had disappeared. For the next few years succeeding managements ran the company soundly enough, but they made two mistakes. They began prettying up their products and they deserted their price class. This latter move they climaxed by producing the Victory Six in I928 to sell at $I ,095 and the Senior Six to sell at over $I,500, when the Model A Ford (which had first appeared the year before) was selling for $495. The only competition Dodge offered Ford was the Standard Six at $875. The trend of the new managements was obvious and it was also obviously wrong. Dodge owners fell into a state of confusion. Dodge dealers began to wail at a sales policy which was not the policy they knew.

chrystler-classic-7_300It was a crisis with which the Dodge widows would have found it hard to deal. Happily, they had no need to: the Dodge families and the Dodge car had separated on May I, I925, when Clarence Dillon of Dillon Read & Co. had appeared to offer the widows $146,ooo,ooo for the business their husbands had bequeathed them. They had accepted. And while their families fell into a bitter quarrel over the equitable division of the $146,ooo,ooo, Mr. Dillon, still retaining control, turned around and sold Dodge stock to the public at a profit of $28,ooo,ooo. This was the setting of the stage; this was the cue for the entrance of Chrysler and the beginning of the deal. There are as many versions of that deal as there are narrators to tell them. One, the most familiar, relates that Clarence Dillon met up with Chrysler on a transatlantic run and unloaded the remnants of the company on him in a series of smoking-room conferences. It would be a pretty story if true. Unfortunately however it neglects both the history and the psychology of the event. Historically it was Chrysler who opened negotiations with an abortive offer in 1926. And psychologically it was also Chrysler's gambit. Dillon undoubtedly wished to sell. But Chrysler wanted more to buy. For only by purchasing Dodge could Chrysler put himself within bowshot of the one hero whom, all his life, he has hoped to emulate: Henry Ford.

The truth of the matter is, in other words, that Chrysler wanted the Dodge plant and the magnificent Dodge dealer service because without them he could not enter the low-price field. And the fact that Chrysler realized in 1928, with his toy Lincoln selling like bot cakes, that he must enter the low-price field to thrive is perhaps the most significant single commentary on his career. In comparison with that fact the actual price paid is unimportant. It may be that Chrysler paid too much for Dodge. But if he did the success of his low-cost car must be his justification. And in any event it cannot be said that Dillon, even on the barest basis of horse trading, had the better of the deal. Chrysler and his attorneys established at the very beginning of the negotiations one condition which gave them an advantage throughout and almost forced the default of Dillon. They demanded, and Dillon agreed, that go per cent of each class of stock must come in-i.e., they refused to trade with a potent minority outstanding. Time and again as the difficulty of securing go per cent of stock issues held here and there and everywhere, at home and abroad, became more evident, Dillon begged to be let off. But invariably Chrysler, pacing the floor with his long Kansas stride, would reflect and reply: "No, Clarence. I can't do nothing for you." The outcome of course is history. Dillon amazingly produced the required go per cent in each issue, Chrysler Corp. paid $170,ooo,ooo in stock and assumption of Dodge indebtedness and the deal was closed. There is one story about the latter stages which deserves print. When Dillon finally called on Chrysler to offer his congratulations remarking that the plant was fine, that the men and organization which came with it need never give him a moment's worry, that he could let the whole works run themselves for three months sight unseen, Chrysler dryly answered: "Hell, Clarence, our boys moved in yesterday." And they had. The moment the last paper was signed Treasurer Hutchinson in New York had telephoned Vice President Keller in Detroit. And the Chrysler staff had moved in like a company of marines occupying a position. Placards reading "Chrysler Corporation: Dodge Division" were nailed to the buildings. And the deed was done. Possession, the purchasers seem to have thought, was nine points of the law-particularly with courts of equity granting injunctions the way they sometimes did. The result of the Dodge purchase was that from 1928 on Chrysler occupied a strategic position of great strength. With the country's best dealer organization available in the 3,160 dealers who had worked for Dodge; with the Dodge plant; and with a new Plymouth plant built in 1928 to turn out 1 ,800 cars a day he could move into the low-cost field as rapidly as he was able. And with his Chrysler line he could blanket the middle-price field as long as there was such a field to work in. The fact that the first Plymouth was merely the old Chrysler 52 (which had been the 58, which had been the Maxwell) with a new name was not important. What was important was the mechanism by which the Plymouth could be made and sold. That it was an efficient mechanism appears from the fact that in 1932 with Ford sales representing 24 percent of the country's. passenger-car output and Chevrolet 29 per cent, Plymouth sales represented 10 per cent; while a year later with Ford sales at 21 per cent and Chevrolet at 32 percent Plymouth accounted for 17 per cent. That statistic plus the statistic which recites that Chrysler Corp. as a whole has stood third in the industry since 1928, having even supplanted Ford in second place in 1933, records mathematically an achievement without modern parallel. Rarely in any industry at any time does a late starter, entering competition at a time when the windward berths are all occupied and stretches of open water are scarce, drive so quick1y into a commanding position.

chrystler-classic-9_300The story of the Chrysler Corp. however is not the story of Walter P. Chrysler's success. On the contrary the story of Walter P. Chrysler's success is the story of the Chrysler Corp. With some men, and rarely, it is possible to describe an entire age or a vast institution in terms solely of the individual who dominates them. It is not possible with Walter Chrysler. Like the Dodge brothers whom be followed, Chrysler is a man of homely force, native shrewdness, and earthly intuition. But like the Dodge brothers he is not a man capable alone of establishing an industrial empire. The imperialism of industry like the imperialism of nations demands other qualities than the will to conquer.

These additional and supplemental qualities are found, in Chrysler's case, in the corporation which for thirteen of its twenty-three years carried the name of Maxwell and which now bears his. It is perhaps the chief of the metaphysical merits of that curious lawyer's gadget, the corporate entity, that it permits the fabrication, out of the limited virtues of many limited men, of a rounded personality. Certainly those corporations are healthy and vigorous which do develop an individual and well-shaped personality of their own. And the public as a whole, unaware though it may be of the reasons for its attachment, responds as readily to such companies as to individual men of warmly human characteristics. It is a commonplace that there are only two personalities in the automotive industry: Ford and Chrysler. It would be infinitely more accurate to say that there are only two personalities: Henry Ford and the Chrysler Corp. For it is the feel of the aggregate in the case of Chrysler to which the public responds, not the feel of the individual mana fact which became painfully evident when ill 1933 the advertising agency of J.Sterling Getchell attempted briefly to revert to early days of Chrysler advertising and to use Walter Chrysler's picture and Walter Chrysler's pronouncements, as Ford's advertisers had used his. The citizens, it turned out, knew all about Chrysler Corp.: they were familiar with its character, at home with its qualities. But Walter P. Chrysler they did not know.

What they knew about Chrysler Corp. was that it was vigorous, that it was tough, and that it was no respecter of the established opposition. Those attributes it owed and still owes in general to seventeen men and in particular to four. The seventeen are Walter Chrysler and sixteen men including the thirteen members of the Operations Committee. The four are: Chrysler, under the new dispensation of July, Chairman of the Board; K. T. Keller, under the new dispensation, President, but formerly Vice President and General Manager in Charge of Production; B. E. Hutchinson, formerly Vice President and Treasurer and now Chairman of the Finance Committee; and Fred M. Zeder, Chief Engineer and now Vice Chairman.

These four have long corresponded in function to Messrs. Sloan, William S. Knudsen, Donaldson Brown, and Charles Kettering at General Motors. Of the first and third of them, Chrysler and Hutchinson, there is little to be added to what bas already been said. Hutchinson, for all his hardboiled claims to a philosophy of pure self-interest, and for all his practice of a technique of shifting his job whenever he saw a possible lift in his pay, has made a devoted and self-sacrificing Treasurer to the corporation. His original feat of raising a $12,ooo,ooo line of bank credit after knocking $ 1,ooo,ooo out of the inventory showed that he could and would beg when he had to. And his March, 1935, achievement of borrowing $25,ooo,ooo at 2.65 per cent to retire the remaining Dodge Brothers bonds still outstanding showed that he could dictate terms as well as take them. It is reported that Jackson Reynolds at the First National, after signing up for a million or so at the unrewarding rate offered him, remarked that he had heard that Hutchinson had had his gall bladder removed. "All I can say," said Mr. Reynolds, "is that they didn't get it all."

K. T. Keller, however, is a newcomer to this narrative and an extremely important one for two reasons. The first is that he has directed production not only for Chrysler but for all its various subsidiaries-Plymouth, De So to, Dodge (of which he is still President), and the rest-and is therefore largely accountable for the physical achievements of the enterprise. The second is that, second only to Chrysler, he has most deeply stamped his own character upon the corporation. It is not the easy, genial, smart Hutchinson , but the heavy, hearty, two fisted, go-getting Keller who resembles most nearly the picture of Chrysler Corp. in the public mind. Keller and Chrysler between them supplied the genes which have determined the corporate appearance.

It is not curious that they should, for they have much in common. Where Chrysler is a sixty-year-old Kansan with a mechanic's training, Keller is a fifty-year-old Pennsylvanian with the same education for life. Aside (rom a romantic interlude in his nineteenth and twentieth years when he toured the British Isles as secretary to a lecturing author his apprenticeship was passed in the machine shops of Westinghouse and of various Detroit automobile and automobile-accessory companies. He met Chrysler in 191 1 and learned to know him well, when, in 1915, Chrysler was President of Buick and Keller was General Master Mechanic of the same company. By the time Chrysler, in 1926, could offer him a job he was General. Manager of General Motors' Canadian operations. And from 1928 on he was the active executive in charge of the difficult assimilation of Dodge. His elevation to the presidency of Chrysler in the present year merely recognizes the existence of a situation which has long obtained. In Keller the corporation has another Chrysler whose likeness to his prototype is both obvious and reassuring.

The fourth member of the dominant group is Fred Zeder, who, though not so active in management as the first three, is as necessary to the corporation as is any of the others save on ly Chrysler himself. It is an interesting commentary upon American industry that the engneer-inventor and the engineer-designer the creators of the product itself which industry exists to manufacture, and without which industry could not exist at all, regularly play second fiddle, not to say fourth double bass, to the uninventive gentlemen who have learned the art or selling what they could not make. Fred der like Kettering is a partial exception to the rule. That is to say that Fred Zeder plays among the first violins at Chrysler. If he is far from being the concertmeister he is nevertheless fully visible on the second bench.

Zeder, like Chrysler, has railroading in his blood. Unlike Chrysler, and unlike the majority of the corporation's top men, however, Zeder succeeded in graduating from  college (Hutchinson left M.I.T at the invitation or the dean in his sophomore year). With a degree from Michigan University in his tab le drawer and with his vacation experiences as a machinist, he took an engineering job with Allis Chalmers and finally ended up as chief engineer for Studebaker, the job from which Chrysler hired him away in 1920. To Willys-Overland he took with him hi.s associates, Orin Skelton and Carl Breer. And when Willys-Overland, despite Chrysler's ministrations, quietly succumbed, Zeder, Skelton, and Breer organized themselves as an engineering firm. It was this firm which received Chrysler's suggestions for the toy Lincoln and it was Zeder who designed the engine from which all Chryslers since have sprung. Today a forty -nine the engineer, rewarded with a vice chairmanship, sits upon both the Operations Committee and the Board of Directors.

chrystler-classic-11_300There is no question in the mind of any Chrysler official as to the reality of the rule of the Chrysler-Hutchinson-Keller triumvirate with Zeder designing its cars. But there is also no question but that the triumvirate, unlike Antony's, rules by and with the advice and consent of the Senate. The Senate, in this case, is the Operations Committee of thirteen made up of Vice Presidents, Counsel, Public Relations Counsel, and Secretary. The Operations Committee meets fortnightly, appeals to Chrysler in case of a division of opinion, and otherwise determines the action of the corporation- unless Chrysler, as is possible but improbable, upsets its unanimous opinion with a veto. The Board of Directors is of course an upper chamber. But the Board of Directors includes, with Chrysler himself, seven members of the Committee of Operations. And the decisions of that committee have therefore an exceedingly persuasive force with the board.

The next most important members of this senatorial chamber are ] oe Fields, the heavy-set, gray-haired, kind! y-faced, and hot-tempered Sales Manager who is reputed to know as many dealers as Dick Grant at General Motors, and lhe smooth. well tailored Byron C. Foy who got the Chrysler distributorship in Detroit the year after he married Chrysler's daughter, Thelma, and who has since become a general assistant to his father-in-law at his ofEce in New York. But neither Vice President Fields nor Vice President Foy ranks within reaching disLance of Hutchinson and Keller. H Walter Chrysler should continue his upward course and leave his corporation to the troops. Keller and Hutchinson would run it as they run it now in his absence. And Zeder would continue in the vice chairmanship which is the exceptional automotive engineer's exceptional reward.

The reason why the engineer is not honored more concretely in the automotive industry is that he does not directly produce the proftts. Profits are the reward of skillful production and skillful sales and production and sales thus rank with the angels.

chrystler-classic-16_300In the case of Chrysler, production, directed by Presiden t Keller, holds the habitual place. From the time when actual new president Keller manufacture of the model for the next ensuing year begins-say, December, 1935, for the 1936 model-production plans are laid for the model for the year after that-1937 in the case imagined. Engine designs appear first, [allowed along about February or March, 1936, by the chasis for the 1937 model. This chassis will then be tested under 1936 bodies while new parts and gadgets are similarly tried out on older cars and finally in May, 1936, the new body design being tentatively established, the complete 1937 car-chassis, body, and all, will be carted out carefully shrouded for midnight testing on remote country toads. Changes if any will be incorporated in the car and by July 15, 1936, the whole 1937 design will have bee11 (frozen. It remains, then, to prepare the dies. These are ordered as various parts of the car are established, the body dies coming last, the fender dies, for example, taking four months to build. And eventually, after three rest runs have been put through the dies, December comes around at:,rain and actual production begins.

This routine is varied only in the case of Plymouth where a crisis in the spring produced a minor revolution in car building. Plymouth's first '933 offering was a 108-inch wheel-base job which the public would not buy. Faced with potential disaster Keller swung all his guns on Plymouth's problem and fired a resounding broadside. He stretched his wheel base to 112 inches and offered as an added inducement to the customers a range of choices in color and gadgets whitch practically made Plymouth a custom job. You could have one windshield wiper or two, safety glass in part or throughout, two spare wheels or only one, your own choice oF color, your own choice of upholstery. In effect the proposal around an offer of 258 body combinations. The idea was, as might have been expected, a resounding success, with the result that one day the production managers discovered that they had 5,000 dollars in the lot, 5,ooo orders waiting to be filled, and no agreement between the second and the first. One blue roadster would be lacking to fill one order, a gray sedan with wire wheels and safety glass would be missing for another.

The solution was a system by which the entire output of the plant is made only to order from the dealers. Orders coming in are sent daily to the control room in the plant. Here thirty-five copies are made and sent to the points from which all the necessary variable parts of the car are dispatched to join the em hryochassis on its way to completion. Timing is so perfect that the specific car ordered by the specific customer comes together as rapidly and smoothly as though the 1,800 cars produced daily at the Plymouth plant were all identical instead of varied. You watch them come, higgledy-piggledy, 180 an hour of all types and colors, and at each stage the right wheel appears miraculously for the right car. Eventually the finished cars, numbered and grouped by orders, are taken to the drive-a way lot or to the point from which they are to be shipped. (In spring about 35 percent of the cars are either driven away by the dealers, if they are within a radius of 400 miles, or trucked away on trailers to save freight. Another 20 per cent of the spring and summer shipments go by boat. The balance and the entire winter otttput are generally shipped by rail.) The whole thing takes only seven days from the time the order is received. As a result delays are saved, larger shipments than before are possible, and the cars on hand at any time are rarely more than one day's production. If a car remains in stock for as long as a week there is something wrong.

But Plymouth's variable production, though a technical triumph of some brilliance, is not one, two in the popular mind in another variation in Chrysler production of more recent date. The Michigan farmers, who in the late spring midnights in 1933, saw strange, buglike shapes looming and moaning along their country roads felt an astonishment not unmixed with fear which their compatriots of the cities were to share in 1934. The Chrysler Airflow was the hig motor news if it was not the big motor success of the year just past.

chrystler-classic-12_300There have been many explanations of that departure from the expected. It has been stated on the one hand that Chrysler 's executives had developed a courageous interest in aerodynamics and didn't care that it cost them, and on the other that Chrysler's executives had stolen a page from the memoirs of the late Mr. Barnum. The truth as usual is much less exciting. The truth is that the Operations Committee, flogging its collective brains to scare up some device for persuading people with $6oo bank accounts to buy $ 1 ,ooo cars, had come to the collective conclusion that comfort was the thing. The public quite evidently knew nothing at all about engines but the public did know whether it was sitting comfortably or not. Chrysler 's designers, like modern architects, began with the inside of their next year's car. The first thing they did was to give the American citizen the two and one-half inches of headroom which the sporting proclivities of the twenties had taken away. The next thing they did was to widen the seats by seven inches and tilt them so that the knees, which designers of the Hoover era had tucked under the chin, might resume their normal orientation. And the last thing they did was to discover that a car built around these revolutionary changes would look like the car of 1918. The only escape was to knock the frame-which is generally seven and one-half inches deep-out of the car rebuild the body on bridge design so that no fntme would be required. The net result was the car which became familiar in photographs to the Americans with their new hero, Alexander Woollcott, in the back seat. "Whether or not the Airflow was a commercial success-and it sold as well as the Chrysler model of the year before-it was an engineering achievement of some interest and one which fitted in well with the experimental history of the corporation. Chrysler has always been the experimenter. At one time or another it has inaugurated or developed such items as the all -steel body, " floating power," and hydraulic brakes. The Airflow, though its 19~4 introduction was perhaps not profittable, introduced one development of value. The principle of "weight distribution," by which the engine is set squarely over the front axle and the rear seat bright forward o[ the rear axle, bas influenced be entire industry. An.d Americans may yet some to thank the Airflow not so much for flowing as for yielding graciously to the well-distributed impression the flesh. Besides its experiments aimed at the comfort of human passengers, Chrysler has also devoted a part of its attention to the accommodation of: heavier and less sensitive packages. This it began with the manufacture of the Fargo truck. But the necessity for the Fargo truck vanished when the Dodge deal went through , for Dodge bad a truck business that enjoyed all the solid substance of the Dodge car business. Chrysler continued the manufacture o.f Dodge trucks and all went well until the depression knocked the bottom out of all truck businesses. By 1932 Dodge truck sales dropped to g,ooo, as against 27,000 in 1929. But in 1931 Chrysler had begun tightening the brakes to control this melancholy slide, and, as a lever, laid hold of its old subsidiary Fargo Motor Co. It now became the selling subsidiary not just for Dodge trucks but for fleet sales. (Fleet sales are bulk truck sales plus bulk sales of passenger cars to companies for use by their salesmen, etc.) Fleet sales are seldom profitable considered ear-by-car; sales expenses, discount jockeying, and trade-in swaps hold the dollar profit down too hard. But the value fleet sales is something that makes Chrysler well pleased with the present operations of fargo. And with the aggressive Colonel A. Downey heading the Fargo selling efforts, Dodge truck sales c1 imbed from their 1932 low of 9,ooo to a full round 48,ooo in 1934. Approximately half Dodge trucks are one and a half tons or less, but a Dodge truck is all but custom made for the individual requirements of large fleet buyers: low- or high-speed axles for hilly or flat country nonstandard wheel bases for peculiar packing jobs, and so on. The retail value of Dodge trucks sold last year was a little over $40,000,000.

chrystler-classic-17_300Production, however, is not altogether a matter of models-passenger or truck. It also involves men. And because it does it involves problems which turn automotive executives purple in the face. "Labor" is not a descriptive epithet in the automobile industry. It is a fighting word. Most manufacturers mention it in guarded cones and would gladly delete it from the world of print. Chrysler is no exception. Down to the fall of 1933 when a tool and die strike hit the industry Chrysler had had an unusually placid labor record. Since that year it has had its troubles with the rest.

The automobile industry, as all the world knows, bas been a bard nuL for organized labor to crack. One reason is that organized labor in general, and the A. f. of L. in particular, operates horizontally on a craft basis whereas the automobile industry, like most modern industries, is organized vertically. Another reason is that assembly-line manufacturing requires relatively little skilled labor, that an enormous floating popular ion o( semiskilled labor adequate to the line has been developed and that men may be drawn £rom this reservoir and trained in the ways of a particular plant in a matter of a few days at the outside. The consequence of that fact and of the seasonal fluctuations of the industry, with their resulting seasonal unemployment, is that organization is difficult. For the unskilled man let off in the dead season is very apt to drift on to something else. Last February's vote under the auspices of the National Automobile Labor Union showed an A. F. of L. membership of only 4 per cent at Dodge and 8 .. 1 per cent in the industry as a whole, while the Associated Automobile Workers of America membership was 5 per cent in the industry. These figures however do not tell the whole story. Labor, blocked in the great motor companies, is now attempting to organize the parts and accessory manufacturers. This shift of tactics results in part from labor's conviction that the parts manufacturers are the Achilles' heel of the great companies and in part from the widely accepted belief that the employees of the parts manufacturers are exploited not by their own employers but by their employers' customers. This contention, given wide circulation in the Henderson report published by the NRA, is based upon the theory that the customer motor companies are able to force down the prices of parts to the point where the parts manufacturers are unable to pay adequate wages. The great motor companies, denying that their purchasing practice has had any such effect, argue that parts prices are now fairly well stabilized and that there is no reason so far as they are concerned why employees in the parts factories should not receive adequate pay.

Meantime however limited gains have been made by labor in the plants of the great companies themselves-and not least in the plants of Chrysler with their 6o,ooo employees. Chrysler's Dodge plant is probably as well organized as any in Detroit. Of 22,000 employees, 14,ooo according to labor claims and far less according to employer claims are members of the independent Automotive Industrial Workers Association. Chrysler has not been picked out for special attention because labor has any particular grievance in its plants. Chrysler hourly wages average over eighty cents an hour against seventy-five cents an hour at Ford, and Chrysler weekly wages, averaging $31 for thirty-nine hours, are as high or higher than any in the industry. Chrysler's employee-representation scheme is also admittedly fair within the field it attempts to cover. The reason for union success at Dodge seems to have been that Dodge employees have been longer in the industry than most others and that some of the Dodge employee representatives have been exceptionally ambitious organizers. And the Chrysler labor situation is not all fighting words and threatened organization. It was relieved early this year by a short-lived strike of special body finishers which brought to the delighted attention of the world the existence of a curious phenomenon known as a dingman. That car bodies just off the line had to have their dents and bumps pounded out was interesting in itself. But that these blemishes were pounded out by a restricted priesthood known as dingmen and that dingmen could strike and had struck for higher pay was something to remember in one's sleep.

In the prescribed order of automotive values, however, production with all its labor problems is merely the condition precedent to sales. Without sales the people perish. The problem of sales as distinguished from the problem of production is fundamentally a problem of price. Price and design fight it out before the Operations Committee on a eat-dog in the preliminary stages while the model is still under discussion-price considerations forcing the elimination of structural proposals and vice versa. But once the model is O.K.'d and put into production only the element of price can change. The strategy of price is simple: to put the proposed car in a position of strength in its field and to keep it there. But the practice is hard. There is no simple basis of computation. Weight will tell something but not enough. The De Soto Air- stream for example weighs 200 pounds and costs $795; the Chrysler Airstream weighs 3,ooo pounds and costs $830. Ten pounds difference in weight in other words means $35 difference in price. The Plymouth weighs 2,790 pounds and costs $630 and the Dodge weighs 2,861 and costs $735, seventy pounds difference in weight now means $105 in price. Obviously there is no mathematical relation between the two examples.

chrystler-classic-14_300The truth would seem to be that price is a resultant of material costs and competitors' lists. Ford for example still dictates price in the low-cost field. The old Dodge was successful so long as it cost about two more than a Ford regardless of what the Ford might cost. It met trouble as soon as it cut loose from that relationship. It is for that reason that it sometimes becomes necessary to carpenter material costs tO fit the price rather than allowing· the price To follow where the cost may lead. This operation, in the Chrysler organization, falls to the lot of Chrysler himself, Hutchinson, and L. A. Moehring, the Comptroller. Armed with production figures on the models for the forthcoming year, and aware that less than sixty-five cents, say, of the corporation's dollar of income must go for materials and supplies and not much more than twenty cents for labor and two and one-half cents for advertising if a cent and a half is to be saved for dividends, cost figures are established and the schedule set up.

It remains then to bring the price, the car, and the purchaser together. It remains, in other words, to let the dealer do his work. Chrysler handles its 10,ooo dealers through the sales heads, who are also the Presidents, of its various subsidiaries. The method is to establish a quota for the city or county in question based upon Chrysler's estimate of the share it should fairly have of the total number of cars of all makes sold in the area the year before. In arriving at the quota figures, sales for the previous year are divided into two groups: "A" including Plymouth, Chevrolet, and Ford, and "B" including eighteen makes such as Buick, Oldsmobile, Packard, etc. In group "A" Chrysler claims 25 per cent and establishes the "A" quota accordingly. In group "B" the Dodge, as the lowest priced Chrysler-made car, is expected to sell 30 per cent while the quota for the Chrysler used to be 1 o per cent and for the DeSoto 8 per cent. The Airflow experience, however, televised these figures downward to 9 percent and 6 per cent for 1935· Chrysler Corp. sales for the 11rst four months of 1935 however are up again - 2 10,000 lll1itS as against 132,ooo in 1934. This may be compared with General Motors' increase from 206,ooo to 302,ooo, Ford's from 163,000 to 312,000.

chrystler-classic-15_300Quotas once established , dealers are expected to sell 70 per cent to hold their franchises. Company advertising-such as the effective "Look at all three" campaign- will do its part. But the dealer must nevertheless do his. And to make his part effective the company must make it profitable. Since Chrysler discounts direct dealers run from Plymouth's 21 per cent on retail sales to Dodge's 24 to 27 per cent based on volume, it would seem that the profit might be large. In actual fact however dealer franchises in the automobile industry have p roved in recent years to be Jess a blessing than a burden. A 1935 Pennsylvania survey of 255 dealers in all makes do ing a $50,ooo,ooo total business showed a net profit on new car retail sales of $2,24 1,2 29, a net Joss on used cars of $ 2,308,25 1. and the wolf held from the door only by the incidental service and stockroom business. he group's net total profit on all lines of activity for the year was $101,000 or about $400 apiece.

Chrysler dealers suffer from this situation as do other dealers. But they offset it in a manner which il as served to b ring many o f them through the depression. Some years ago Hutchinson inaugurated a useful device known as three-way distribution. The theory' was that Plymouth should h ave no dealers of its own but that Chrysler dealers, De Soto dealers, and Dodge dealers should all sell Plymouths. The result was that Plymouth got 1o,ooo dealers without having one, and that the dealers pried their way into the low-cost field without losing their existing franchises. It may not be possible for Chrysler Corp. to brag, as Dodge did before it, that it has the best sales force in the industry. But it is unarguably true that Plymouth, Chrysler's most profitable car, has the largest and the most extensive.

The year 1935, then, which sees Walter Chrysler at the age of sixty easing himself out of the presidency, sees the Chrysler Corp. in an enviable state. It is neither as large as General Motors nor as rich as Ford. But it is alive from one end of its organization to the other. And it alone of American motor manufacturers has exceeded in this sixth year of the depression its rate of production in the boom year 1929.


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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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