Chrysler's Recovery Plan

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From Chrysler’s own summary of its recovery plan (full text of the 2008 Chrysler recovery plan):

The first question is, what changes has Chrysler made to help itself? Since Chrysler became an independent company in 2007:

o We eliminated over 1.2 million units of capacity, or 30 percent;
o We reduced fixed costs by $2.4 billion and, separated over 32,000 employees - including 5,000 on the Wednesday before Thanksgiving. And at the same time…
o We invested in product improvements - over half a billion dollars in our first 60 days;
o We improved our latest JD Power quality scores, and reduced our warranty claims by 29%;
Part of our business model transformation includes alliances and partnerships - for example - the agreements to produce vehicles for VW and for Nissan. As a result, through the first six months of the year, Chrysler met or exceeded our operating plan, ending the first half with $9.4 billion unrestricted cash.

Why does Chrysler need the funding?

We need to address the unprecedented drop in vehicle sales caused by the financial crisis. U.S. sales are down from a 17 million unit selling rate in early 2007, to an estimated 11 million unit selling rate for the fourth quarter of 2008 - a 38 percent decline. We lost 20% of our sales virtually overnight when the financial market crisis forced us out of the consumer lease business. With customers not buying…with dealers not ordering…with our plants not producing…Chrysler’s cash inflow has suffered.

So how will the bridge loan be used? Cash will support ongoing operations as we continue to restructure the business, including in the first quarter alone:

o $ 8.0 billion in payments to parts suppliers
o $ 1.2 billion for other vendors
o $ 900 million in wages
o $ 500 million in healthcare and legacy costs
o $ 500 million in capital expenditures

Without an immediate working capital bridge, Chrysler’s liquidity could fall below the level appropriate to ensure operations in the ordinary course by the first quarter of 2009.

So, who is contributing to saving Chrysler? First and foremost, Chrysler and its extended enterprise will. That starts with me. I receive a salary of $1.00 a year. I have no employment contract, no change of control agreement, no “golden parachute,” and receive no health care or life insurance benefits from the company. We are committed to negotiate concessions from all of our constituents.

The next question - Does Chrysler plan to build cars and trucks that consumers want to buy, and that support the country’s energy security and environmental goals?

Our product plan features 24 major launches from 2009 through 2012. For the 2009 model year, 73% of our products will offer improved fuel economy compared to 2008 models. We plan on launching additional small, fuel-efficient vehicles. ENVI is our breakthrough family of all-electric…and range-extended electric vehicles - similar to the one parked outside. Chrysler’s product plan includes the introduction of the Ram Hybrid and our first electric-drive vehicle in 2010 with 3 additional models by 2013.

Does Chrysler have a viable plan?

With our requested bridge loan - absolutely! I also believe that further partnership, restructuring and consolidation would make the U.S. auto industry even more viable and competitive in the long run. Further opportunities for technology sharing would provide fuel-efficient cars and trucks more cost effectively and faster to market. The three-company alliance that developed the dual mode hybrid is a good example. As a Country, we should not trade our current dependence on foreign oil for a future dependence on foreign technologies.

The final question is, when will Chrysler pay back this loan? We believe we will be well positioned to begin repayment of the federal loans — in 2012. I recognize that this is a significant amount of public money. However, we believe this is the least costly alternative considering the depth of the economic crisis and the options we face.

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Dec. 3 -- General Motors Corp., Ford Motor Co. and Chrysler LLC, struggling for support in Congress for aid, won money-saving union agreements to delay contributions to medical funds and suspend a program that pays laid-off workers.

Today’s move by the United Auto Workers gives GM, Ford and Chrysler a boost as their chief executive officers prepare to testify tomorrow and Dec. 5 on their requests for $34 billion in financial help. Lawmakers have pressed the companies to show how they will survive and repay any government loans.

“This should be interpreted as a meaningful and a painful sacrifice,” said Harley Shaiken, a labor relations professor at the University of California at Berkeley. The jobs bank was “something the union worked over decades to achieve.”

Aid proposals sent yesterday to Congress by the automakers are more than a third larger than the $25 billion request set aside by lawmakers last month, heightening pressure for action as a deepening auto slump quickens GM’s rush toward a default.

While President-elect Barack Obama has said he favors an industry rescue, GM and Chrysler said they won’t be operating by the time he takes office in January without the money now stalled by a deadlock in Congress. Democrats want to tap the $700 billion bank-bailout fund, and Republicans favor using Energy Department loans.

Obama’s View

Lawmakers were right to demand that the companies’ CEOs provide a plan to sustain their businesses in order to get federal aid, and their latest efforts are “a more serious set” of proposals, Obama said today.

“When the Big Three automakers came before them three weeks ago, they were not offering a clear plan for viability over the long term,” Obama said at a news conference in Chicago where he announced New Mexico Governor Bill Richardson as his choice to head the Commerce Department.

Complete Article:Bloomberg.com: U.S.

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PRESS RELEASE
Chrysler LLC President and Vice Chairman Tom LaSorda Reminds America and Washington About Auto Industry Impact on Communities Across the Nation with Visit to Toledo, Ohio
-- LaSorda focuses attention on neighborhood streets, auto plant streets, the middle class -- Toledo, Ohio ("Home of the NITRO"), is example of how auto industry touches every town in America -- LaSorda provides highlights of viability and accountability plan submitted to Congress -- Toledo rally is just one stop of 'Virtual Road Show' to put spotlight on integral role the U.S. auto industry plays in nation's economy

Last update: 2:05 p.m. EST Dec. 3, 2008


TOLEDO, Ohio, Dec 03, 2008 -- Chrysler LLC President and Vice Chairman Tom LaSorda held a community town hall at the Toledo Supplier Park in Toledo, Ohio, today to rally support for the U.S. auto industry, highlighting its impact on towns across the country.
Joined by Toledo Mayor Carty Finkbeiner, President of UAW Local 12 Bruce Baumhauer, plant employees, representatives from CSX Transportation and Fleet Car Carriers, as well as members of the community that benefit from Chrysler's support, LaSorda called on those in the audience to remind America and Washington that the health and vitality of the auto industry isn't about Wall Street or Main Street.
"We are talking about neighborhood streets and auto plant streets. This is where the true work begins," said LaSorda. "This isn't about Joe the Plumber. This is about Joe and Josephine, the autoworker."
The Chrysler Vice Chairman said that the country needs to be reminded that it was the auto industry that built the middle class and fought, and continues to fight, for this country.
Using Toledo and the company's innovative supplier park concept as a backdrop, LaSorda explained how the auto industry is woven into the fabric of communities across the nation.
"Chrysler has deep roots in Toledo, the birthplace of Jeep(R)," said LaSorda. "The Jeep brand's military heritage is a reminder of why America needs a strong manufacturing base if it is going to continue to be a world leader. A strong U.S.-based automotive industry also is the backbone of the nation's economy."
In Ohio in 2007, Chrysler alone had nearly 8,000 employees and retirees, 625 suppliers, 170 dealers, paid more than $15 million in state taxes and provided more than $737 million in wages and pensions.
In recent years, Chrysler has made major investments in the Toledo community: Toledo North Assembly Plant, where the Jeep Liberty and Dodge Nitro are built; the Toledo Supplier Park, home to the Jeep Wrangler and Wrangler Unlimited; and the Toledo Machining Plant, producers of steering columns on Chrysler products. The Toledo Supplier Park is an example of how Chrysler is transforming its business by involving three partners to manage and operate major parts of the production process. In fact, this plant was recognized by the 2008 Harbour Report as the best-performing assembly plant in North America.
Without immediate support from Congress, not only will the manufacturers be impacted, but so will the thousands of suppliers servicing the industry. Brian Daly, Vice President of Sales and Marketing for Fleet Car Carriers, a family-owned business, says the ripple effect of the auto industry is 100 percent.
"We deliver not only from plant sites, but railheads and ports, with deliveries to dealers in every state, coast to coast," said Daly. "We maximize operating efficiencies by loading vehicles from all manufacturers on the same trucks everyday. Without Chrysler, Ford or GM to mix, those efficiencies are lost. Our costs would be significantly increased. What is happening today is a national issue."
LaSorda acknowledged that the devastating national recession has interrupted both the company's sales and the continued efforts to transform the business.
"You already know the story better than anyone, of how we had to reduce capacity and lay off people. Those aren't easy decisions," said LaSorda. LaSorda shared some highlights of the plan that was submitted to Congress on Dec. 2, which demonstrates the Company's commitment to achieving viability and accountability. The plan included:

-- 24 major product launches from 2009-2012;
-- 73 percent of Chrysler's 2009 products will offer improved fuel economy
compared to 2008 models;
-- ENVI, the breakthrough family of all-electric and range-extended
vehicles, including the Jeep EV which provides a glimpse into the
future of a "Go Anywhere, Do Anything" vehicle with renowned Jeep
Wrangler capability; and
-- The introduction of the Ram Hybrid in 2010, followed by the first
electric-drive vehicle that same year with three additional models by
2013.




LaSorda made it clear that the request to Congress was for a bridge loan, which the Company believes it could start repaying with interest in 2012.
"We recognize that this is a significant amount of public money," said LaSorda. "However, we believe this is the least costly alternative considering the depth of the economic crisis and the options we face."
The rally in Toledo is part of a "Virtual Road Show" that the Company is taking to stakeholders in seven states in three days. The meetings and initiatives are being organized by a number of groups and organizations to help develop an awareness of the integral role U.S. auto makers play in the nation's economy and national security as well as why the temporary financial assistance provided by a bridge loan is critical to Chrysler and the industry.

Chrysler LLC