Who Killed Chrysler?

NEW YORK (Fortune) -- The survival of Chrysler as an independent company is looking increasingly unlikely.

The fundamentals of its business structure - unappealing passenger cars, dismal quality, little technology, minimal international operations - are scary enough. Meanwhile, continuous rounds of layoffs have hollowed out the company, starving it of the basic resources it needs to engineer, manufacture and market automobiles.

One executive described Chrysler as looking like an imposing castle from the outside, but actually being empty once you got beyond the front door.

Now debt-holders are balking at government demands to take a haircut, car sales show no signs of improving, and the government's May 1 deadline for demonstrating viability is fast approaching. Having escaped bankruptcy in the late '70s and again in the early '90s, Chrysler appears to have run out of options.

Fiat, once held out as Chrysler's last hope, no longer needs to go through the trouble of a formal takeover. It could easily cherry-pick the company's assets in a liquidation. It would cost the Italian automaker a few bucks more, but it would be a lot cheaper in the long run.

So what happened to Chrysler?

While General Motors has been on a slippery slope for 40 years, the roots of Chrysler's decline are more recent. At the time of its merger with Daimler in 1998, it was the hottest company in Detroit.

With its dream team of engineers, designers, and marketers, Chrysler had created a high-profit lineup of minivans, pickup trucks and Jeeps. At one point, its CEO, Robert J. Eaton, was fantasizing about 20% market share and 8% profit margins. Mixing in Daimler's technical resources, global reach, and the always-tantalizing benefits of synergy should have created a Chrysler recipe for success.

But the Germans hamstrung their new American unit more than they helped it. Their formal business structure clashed with Chrysler's more freewheeling ways and promised resources took a long time to make their way from Stuttgart to Auburn Hills.

And Chrysler made plenty of mistakes on its own. The dream team disbanded, engineering costs skyrocketed and an ill-conceived efficiency program hurt vehicle quality and customer appeal.

In retrospect, the fatal blow was struck when then-CEO Dieter Zetsche tried to stretch the product development budget by churning out more new models with less money. It sounded like black magic -- and as it turned out -- it was.