Chrysler Chairman and CEO Bob Nardelli sent an email to employees today in which he said the company has had "very constructive discussions" with the U.S. Treasury and the Presidential Task Force on the Auto Industry. Chrysler has emphasized in its discussions that it is a viable business on a stand-alone basis, and the future is further enhanced by the proposed global alliance with Fiat.
Chrysler is working determinedly to conclude negotiations with all parties to meet the March 31 deadline specified in the U.S. Treasury loan agreement. "Throughout the process of seeking government assistance, our plan for viability has been based on a very conservative view of the auto industry, taking into account the current financial crisis and economic environment, which we believe will be with us through the end of 2009."
Nardelli said that, beginning in November 2007, Chrysler sensed the industry weakness before other competitors and took aggressive action to restructure. "As a result, much of the cash expense required for inventory reduction and restructuring is now behind us, and our dealers have achieved the lowest inventory levels among the domestic auto manufacturers."
Chrysler is viable as a stand-alone company, even with a conservative forecast of U.S. auto industry sales trends, Nardelli said. Under the stand-alone plan, Chrysler is on track for 24 product launches over the next 48 months, including a family of electric-drive ENVI vehicles.
If Chrysler were to use the more optimistic U.S. sales assumption levels of a competitor, the company would generate an additional $9 billion of cash flow over six years, Nardelli said. Chrysler would be able to repay 100 percent of the taxpayer debt in five years, versus starting to pay the debt in 2012, as submitted in the stand-alone plan.
"Our plan also included very conservative assumptions on net pricing. If we used even very modest positive pricing assumptions…we would generate an additional $7 billion of cash flow," Nardelli said. When added to the $9 billion in cash flow from stronger sales, this would produce a total of $16 billion of additional cash flow, enough to pay off debt in only four years, he said.
Chrysler plans to launch 24 products in the next 48 months, "which we're confident will help us preserve, as well as gain modest share," Nardelli said. Since 1992, Chrysler has lost only 2.4 percentage points of share in total, much less than its domestic competitors.
Chrysler's electric and electric range-extended vehicles will start to hit the market in 2010, and "will clearly give us a competitive advantage in meeting both consumer expectations and government regulations," Nardelli said.
Under the proposed Fiat alliance, Fiat will make available its entire product portfolio and powertrain technology. Fiat's worldwide distribution capabilities will also be utilized for Chrysler vehicles, and the two companies will achieve synergies in purchasing, engineering and other areas.
"We estimate the cash value of Fiat's contribution to be between $8 billion and $10 billion considering the cost to develop these vehicles, platforms and powertrains from scratch," Nardelli said.
"In addition, production of vehicles for Fiat in North America will allow Chrysler to increase its plant utilization, helping to preserve and create in excess of 5,000 manufacturing jobs," he said.
Fiat's lineup produces the lowest CO2 emissions of any major European automaker and their product portfolio complements Chrysler - allowing Chrysler to introduce vehicles in the A, B and C segments to compete with domestic competitors.
"From a distribution standpoint, they (Fiat) are where we aren't," Nardelli said. For example, Fiat is No. 1 in Brazil and South America, and the Italian automaker has agreed to distribute Chrysler vehicles worldwide.
Nardelli also highlighted some recent good news. In February, Chrysler gained 1.4 points of retail market share in the United States, climbing to the No. 2 spot in retail sales among domestic automakers.
And in Canada, Chrysler finished No. 1 in sales in February for the first time in the company's 84-year history. Chrysler needs to be cost competitive in Canada and is seeking concessions for its Canadian operations that are in line with those requested by the U.S. Treasury for Chrysler overall, Nardelli said.
"We've aggressively restructured our business to reflect the
economic realities, significantly improved the fuel efficiency and
quality of our product line and created a conservative plan for a
viable future that is further enhanced through the proposed global
alliance with Fiat," Nardelli concluded.