Long, tortured road to new Chrysler plant

March 5, 2013, 9:23 PM UTC

FORTUNE — Chrysler Group’s $374 million investment in three Indiana transmission plants last Thursday prompted a great sigh of relief in mostly rural Tipton County. Five years ago the global financial crisis stopped the new plant there in its tracks. The plant was supposed to bring employment and activity to a rural community. Instead a big building has stood empty, symbolic of broken promises, soured business deals and a string of lawsuits.

At least Chrysler now appears ready to do what it planned in 2007, which is to manufacture fuel-efficient transmissions. The 850 new jobs in a county of only 17,000 souls will create meaningful prosperity on the heels of an unemployment rate that peaked above 17% in 2009. “This is a once-in-a-lifetime event in Tipton,” said Jeff Sheridan, executive director of economic development for the county. “It’s been a long road. We’ll be much happier when the plant is up and operating and people are cashing their paychecks.”

Katelyn Hancock, a spokesperson for the state’s economic development corporation, said Indiana had agreed to extend $11.5 million in tax credits once the plant is operating, as well as $200,000 in training grants.

The first deal for a new transmission plant stemmed from discussions that began in 2006 among Indiana, Tipton, what was then DaimlerChrysler and Getrag, the German transmission manufacturer. But by the spring of 2007 Daimler had sold 80.1% of Chrysler to Cerberus Capital Management, a New York-based private equity company.

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Chrysler, under Cerberus’s management, and Getrag bickered. Shortly after the failure of Lehman Brothers in September, 2008, Chrysler sued Getrag, alleging that the transmission maker misrepresented its ability to secure financing for the plant. Getrag Transmission Manufacturing LLC, a U.S. subsidiary, in turn filed for bankruptcy — leaving Chrysler, international construction manager Walbridge, and the population of Tipton in the lurch. Chrysler, meantime, filed for bankruptcy in 2009 and was reorganized by the U.S. Treasury as an affiliate of Fiat Automotive.

Walbridge, based in Detroit, had already completed construction of the plant but wasn’t paid the $48 million it was owed. Instead, Getrag gave Walbridge the plant. Walbridge sold it to Abound Solar, a maker of solar panels, for $33 million. Abound won a $400 million loan from the U.S. Department of Energy in 2010. Two years later it filed for bankruptcy.

Walbridge’s lawsuit against Getrag for losses against it and its subcontractors, seeking more than $20 million, is in The Hague awaiting translation so it can be served on Getrag in Germany.

Chrysler plans to manufacture a nine-speed automatic transmission in its new plant, which should improve fuel efficiency on two models, the Dodge Dart and the 2014 Cherokee. The design for the transmission was licensed from ZF, another German maker of transmissions. The company is nearly 100 years old and once made transmissions for Zeppelin airships, according to its website.

The plant in Tipton, plus two other Chrysler transmission plants in Kokomo, Ind., means the automaker has concentrated all of its capacity for the critical component in one small geographic area, just north of Indianapolis.

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Whether Chrysler’s intent was to cluster all of the transmission plants in an area could be paralyzed by a blizzard or other natural disaster only is known to those who ran the company 10 years ago. Automakers typically avoid concentrating manufacture of a critical component in one area to mitigate the effect of such disasters.

It was Tipton’s good luck that Chrysler’s newest transmission plant survived myriad financial and legal disasters that were, for a time, just as dangerous.