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Kolka says Chrysler is safer investment than GM

Posted Thursday, Mar 19, 2009, 10:10 am in Employee Company News

Chrysler LLC, seeking $5 billion in additional U.S. loans, is in a better position to deal with the recession and is a safer investment for taxpayers than General Motors Corp., said Ron Kolka, Chief Financial Officer, according to this Bloomberg news story.

With a March 31 deadline to complete restructuring efforts or face liquidation, Chrysler is making the case to the public and to the government that it is worth saving. The third-largest U.S. automaker says it can earn a profit and repay its loans at a lower level of nationwide sales than Detroit-based GM, he said.

“If you look at it on a pure-business basis, we are clearly more viable,” Kolka said yesterday in an interview at Chrysler’s Auburn Hills, Mich., headquarters.

GM spokeswoman Renee Rashid-Merem didn’t return a phone call last night about the automakers’ restructuring and Kolka’s comparison between the two.

GM, which has four times as many employees and is exposed to the recession in markets around the world, is operating with $13.4 billion in U.S. loans and is requesting as much as $16.6 billion more. Chrysler, controlled by Cerberus Capital Management LP, has borrowed $4 billion from the government.

Chrysler expects to return to profit if the U.S. market averages annual sales of 11.1 million light vehicles during the next five years. Last year’s U.S. market, the worst since 1992, put hundreds of auto-parts makers at risk and forced the United States to grant emergency loans to Chrysler and to GM. U.S. sales of cars and light trucks fell 18 percent last year to 13.2 million.

Chrysler isn’t facing a cash crisis at month’s end like it was in December, Kolka said. Its cash position is between $1.9 billion and $5.9 billion and stable, he said.

The request for further aid is to ensure the company will “never be back for more,” Kolka said. If the automaker doesn’t win government support, he said, it would likely use its remaining cash to shut down the company in an orderly manner.

“I don’t know that we can let either Chrysler or GM just fold and liquidate,” Erich Merkle, an auto-industry analyst in Grand Rapids, Mich., said. “Through the supply base, they almost become Siamese twins. They almost have the same heart.”

Chrysler and GM are working under a March 31 deadline established by the Bush administration to create a plan that would prove how government loans could be repaid, including cutting labor costs.

President Barack Obama’s auto team, which includes advisers Steven Rattner and Ronald Bloom, has been gathering information and is in nearly daily contact with Chrysler, Kolka said.

The automaker has accomplished most of the required elements of the plan except for reducing its net debt by $5 billion. Doing so will require getting an agreement from its lenders to accept a stake in the company in exchange for lowering their bank loan obligations to $1.9 billion from $6.9 billion.

The U.S. Treasury is handling discussions with secured lenders, Chief Executive Officer Robert Nardelli said March 17 in a CNBC interview.

Kolka said he isn’t rooting for GM to fail or to be denied further aid. His concern is that a political decision could be made on the basis that GM is too big to fail and closely held Chrysler isn’t. Cerberus holds an 80.1 percent stake; Daimler AG, maker of Mercedes-Benz luxury vehicles, owns the rest.

Chrysler’s plan to return to profitability assumes the U.S. market will have 10.1 million light-vehicle sales this year compared with 10.5 million that GM predicts. After that, GM expects a much stronger U.S. market, growing to 14.3 million in 2011 while Chrysler’s forecast is for 11.1 million cars and light trucks.

Accounting firm Grant Thornton LLP estimated last week that auto sales would be between 12 million and 14 million in the U.S. beginning next year.

Even if sales fell to 9.1 million in the United States this year, from 13.2 million in 2008, Chrysler would have $8.1 billion in cash at year-end, Kolka said.

“We hope like heck GM is right, because if they are, we’re sitting pretty good,” he said. (Bloomberg)
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