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Chrysler Canada Submits Viability Plan
Chrysler Canada Submits Viability Plan to Canadian Federal and Ontario Governments
* Chrysler Canada requests government loan to support Viability Plan
* Progress has been made on concessions from Canadian stakeholders
* Canadian market has further deteriorated since December submission
* Seeking proportional share of funding offered by U.S. government
* Chrysler Canada employs 9,400 Canadians and supports more than 13,000 retirees
* Chrysler Canada produces close to half a million vehicles per year
Windsor, Ontario , Feb 20, 2009 - Chrysler Canada today submitted its long-term viability plan in support of the company’s request for Federal and Provincial assistance. This document follows the original submission to the Federal and Ontario Governments of December 5, 2008.
“We are very appreciative of the continued support from the Federal and Ontario governments in our request for a repayable working capital loan,” said Reid Bigland, President and CEO - Chrysler Canada. “We are confident that this loan will assist Chrysler Canada in its restructuring efforts to achieve long-term viability, and we expect to continue our significant corporate presence in Canada where we have been active for 84 years.”
The Chrysler LLC Viability Plan submitted to the U.S. Treasury on February 17 is an integrated Plan that includes Chrysler Canada’s operations. This Plan contains a summary of strategic actions that demonstrate Chrysler LLC long-term viability as a stand alone company as well as potential benefits of a strategic alliance for its North American operations.
The Viability Plan does not call for Canadian plant closures. The Company will continue to seek opportunities in the form of reduced fixed costs, investments in new vehicles and technologies, and formation of strategic alliances and partnerships.
Chrysler Canada forms an integral part of the Chrysler LLC Viability Plan as it assembles approximately half a million vehicles per year for the Chrysler enterprise, and exports 85 per cent of the Canadian-built product which includes the Dodge Grand Caravan built at the Windsor Assembly Plant and the LX series of vehicles – Dodge Charger, Dodge Challenger and the Chrysler 300 - built at the Brampton Assembly Plant.
Chrysler Canada employs 9,400 Canadians and supports more than 13,000 retirees. Chrysler Canada’s network of 450 dealers across Canada employs in excess of 24,000 Canadians. In addition, there are approximately 156 companies with approximately 428 supplier manufacturing locations in Canada and thousands of additional employees that benefit from Chrysler’s presence in Canada.
Current and former employees of Chrysler Canada and their families make up a population of more than 50,000 Canadians who rely on the health and well-being of Chrysler Canada.
The Canadian Automotive Market
The Canadian automotive market has significantly declined since Chrysler Canada submitted its original request for funding on December 5 and further deterioration is expected. In 2008, a total of 1.67 million units were sold in Canada. The January 2009 sales signal an estimated annual rate of 1.37 million for the year as the credit crisis continues to adversely affect consumers’ buying ability. Although Chrysler Canada was the second highest selling vehicle manufacturer in the country last month, total sales were down due to a 25 per cent drop in industry demand.
During the first half of 2008, Chrysler Canada achieved 23 consecutive months of year-to-year sales. This trend changed during the second half of 2008, when credit conditions in the market heavily deteriorated. An estimated 25 per cent of prospective Chrysler Canada buyers are unable to obtain financing to purchase a new vehicle. Leasing previously represented approximately half of Chrysler Canada’s sales transactions, but this figure dropped to zero when credit became virtually non-existent last summer.
The lack of available credit has also significantly affected Canadian dealers who are struggling to secure a mortgage or to finance renovations, facility improvements, and vehicle wholesale purchases.
The creation of the Canadian Secured Credit Facility, announced as part of the Federal budget last month, will assist in the short–term and it is expected to provide a much-needed stimulus to auto sales.
Loan Request
Chrysler Canada continues to request a pro-rata contribution from the Canadian and Ontario governments proportionate to our total manufacturing output that resides in Canada.
The current $1 billion pledged by the Canadian and Ontario Governments will be used to allow for Chrysler Canada’s continued viability and presence in Ontario and Canada. The funds in the form of a repayable low interest medium-term loan will assist with the capital needed to continue with the restructuring initiatives and cost reduction efforts, assist with ongoing obligations to employees, retirees and suppliers, and continue the development and sale of a fuel-efficient product portfolio.
Highlights of the Chrysler LLC Viability Plan
Strategic Alliance
Chrysler has signed a non-binding agreement to pursue a strategic alliance with Fiat that represents significant strategic and financial benefits to stakeholders. The proposed Fiat Alliance would enhance Chrysler’s viability plan and would provide the Company with access to competitive fuel-efficient vehicle platforms, distribution capabilities in key growth markets and substantial cost-saving opportunities.
Products
Chrysler’s viability plan is built around a robust product plan, including 24 launches in 48 months and the introduction of electric vehicles. In 2010, the company will launch four highly successful platforms: a new Jeep Grand Cherokee, a new Dodge Charger, a new Dodge Durango and a new Chrysler 300 (the most awarded car in automotive history since its launch in 2005).
In 2008, Chrysler Canada offered six vehicles achieving 40 mpg or higher, and 20 vehicles with highway fuel economy of 30 mpg or better. For 2009, 73 percent of Chrysler LLC’s vehicles show improved fuel economy compared with the prior year’s model. Fuel economy will continue to improve in 2010 with the introduction of the all-new Phoenix V-6 engine, which will provide fuel efficiency improvements between 6 to 8 percent over the engines it replaces. A two-mode hybrid version of one of Chrysler Canada’s best-selling vehicles, the Dodge Ram, is scheduled for 2010. The first Chrysler electric-drive vehicle is also scheduled to reach the market in 2010. It will be followed by other electric-drive vehicles, including Range-extended Electric Vehicles, in the following years in order to further reduce fuel consumption.
The proposed Fiat alliance would further help the Company achieve these standards as Chrysler gains access to Fiat’s smaller, fuel-efficient platforms and powertrain technologies. The alliance would enable Chrysler to reduce its capital expenditures while supporting the company’s commitment to develop a portfolio of vehicles that support national energy security and environmental objectives.
Restructuring Actions
Chrysler Canada’s plan includes the following restructuring actions through year-end 2008 which were highlighted in the February 17 Chrysler LLC Plan.
* Reduced fixed costs by $3.1 billion
* Reduced its work force by 32,000 (a 37 percent reduction since January 2007)
* Eliminated 12 production shifts
* Eliminated 1.2 million units (more than 30 percent) of production capacity
* Discontinued four vehicle models
* Disposed of $700 million in non-earning assets
* Improved manufacturing productivity to equal Toyota as the best in the industry as measured by assembly hours per vehicle according to the Harbour Report
* Achieved lowest warranty claim rate in Chrysler’s history
* Recorded the fewest product recalls among leading automakers in 2008
Canada-specific restructuring actions through the end of 2008 include:
* Closure of 3 Parts Distribution Centres (Winnipeg, Moncton, and Vancouver)
* 3rd shift eliminated at Brampton Assembly Plant in 1st quarter 2008
* Workforce reduction of 1,700 employees since January 2007 (-18 per cent)
Additional restructuring actions planned in 2009, as detailed in the February 17 Chrysler LLC Long-Term Viability Plan, include:
* Reduce fixed costs by $700 million
* Reduce one shift of manufacturing
* Reduce total manpower by 3,000 people
* Discontinue three vehicle models
* Take out 100,000 units of capacity
* Sell $300 million additional non-earning assets
As a condition for receipt of the loan, Chrysler Canada has sought concessions from Canadian stakeholders in order to decrease structural costs and restore competitiveness. These include the following:
Dealer
Chrysler Canada sought and received concessions from the company’s dealers in Canada. These measures include a reduction in dealer margins, elimination of factory fuel fill, and other measures.
Union
Discussions with the Canadian Auto Workers (CAW) are ongoing related to achieving competitive labour costs in Canada. Current all-in hourly labour costs (active employees and retirees) in Canada result in a gap in cost competitiveness related to Chrysler U.S. facilities. The CAW has passed a special resolution enabling it to enter into discussions and reach an agreement with Chrysler to ensure that labour costs at Chrysler Canada facilities are fully competitive with Chrysler’s U.S. facilities. The target to finalize an agreement with the CAW is March, 2009.
Suppliers
Chrysler LLC has initiated the dialogue with its suppliers, including suppliers in Canada, and believes that it will be able to obtain substantial cost reductions that will result in achieving targeted savings.
Chrysler Canada
Chrysler Canada has been a major corporate citizen in the country and mainstay of the Ontario economy for 84 years. Chrysler Canada’s sales represented 11 percent of Chrysler LLC’s 2008 worldwide sales, and Canada is the 2nd largest market for the company following the United States. In 2008, production in Canada accounted for 26 per cent of the company’s total build, with 85 per cent of that production being exported to the United States.
Despite the economic challenges of the past few months, 2008 nonetheless represented Chrysler Canada's second highest sales year in the last five years. In January, 2009, Chrysler Canada was the country’s No. 2 automaker, with a solid market share of 14.2 per cent. Minivans were our No. 1 selling product in 2008, and the Dodge Grand Caravan was the No. 2 selling nameplate in the country in January. The minivan celebrated its 25th anniversary in 2008, and almost one out of every two minivan customers in Canada bought a Chrysler or Dodge minivan. Minivan sales were up 39 per cent in 2008.
Nearly half of all Canadians purchased a 4-cylinder vehicle in 2008, and Chrysler Canada has a wide variety of 4-cylinder models for them to choose from, including the Dodge Caliber, Jeep Patriot, and Jeep Compass “Trio” whose sales were up 11 per cent last year. Dodge Journey, launched just last year, quickly became the No. 1 crossover in Canada.
Chrysler Canada launched the new Dodge Ram pickup in 2008, and saw 2008 sales of the Ram 1500 rise 23 per cent in a segment that was down 10 per cent. The Dodge Ram received the prestigious “Pickup Truck of the Year” award from the Automotive Journalists Association of Canada. Pickup trucks are still the No. 2 segment in Canada, with approximately 250,000 sales annually.
Chrysler LLC
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Rick
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