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Nardelli’s e-mail outlines progress on viability plan

Posted Tuesday, Jan 27, 2009 at 9:34 am in Company News

To all Chrysler employees,

Over the weekend, the senior leadership teams of Fiat SpA and Chrysler LLC held an informal meeting in Auburn Hills. Fiat CEO Sergio Marchionne and several members of his team spent time talking to our executives and visiting a display of our vehicles in the design dome. This was a very positive meeting.

As I have mentioned before, this potential alliance would give us access to substantially all Fiat group vehicle platforms, which would complement our current product lineup with fuel-efficient, environmentally friendly small cars and powertrain technology. Using Fiat’s distribution system, we’d be able to greatly increase the global reach for the Chrysler, Dodge and Jeep® brands in markets outside of North America.

This potential alliance is very promising, but getting there is totally contingent on meeting the viability plan required of us by the U.S. Treasury. We must work even harder to find ways to reduce costs while investing in product improvements and innovation that will support our sustained viability for the long term. We’re stepping up this process, and I wanted to provide you an update on our significant progress to meet the Feb. 17 interim reporting date.

First, we’re taking dramatic actions to increase revenue. Our viability plan is not just about cost cutting; it also entails driving revenue by selling and promoting our great products. We continue to improve our value, safety, quality, warranty, fuel-economy and innovation for our customers. For the 2009 model year, over 88 percent of Chrysler’s vehicles achieved five stars for frontal-crash tests, 86 percent achieved the highest rating for side-impact protection and 73 percent of our product lineup offers improved fuel economy compared with last year’s models. Chrysler had the industry’s lowest number of recalls in 2008 as reported by NHTSA and internal warranty data show that the company has achieved the lowest warranty claim rate in its history, with a 30 percent improvement in the last 12 months.

I’m sure you’ve all heard by now about our aggressive incentive programs to bring customers back and put them into our vehicles. With Chrysler Financial receiving a $1.5 billion loan from the federal TARP fund, it has been able to extend financing to a much wider range of customers—those with credit scores of 620 and above. In addition, when the TARP loan to Chrysler Financial was announced, we moved quickly to announce zero-percent financing. Then we followed that up with the “Employee Pricing Plus Plus” program, which combines employee pricing and consumer cash discounts with zero-percent financing. These unprecedented programs demonstrate our commitment to our customers and our dealers. When retail customers are buying, then our dealers order wholesale, and we can run our factories—and that adds up to long-term viability.

Second, we’ve continued our aggressive restructuring. So far, we have taken out 1.2 million units or 30 percent of our production capacity, have stopped building four models to simplify our product line and have reduced our total work force by 32,000 employees. These and other tough actions have reduced our annual fixed costs by more than $3 billion.

Our internal restructuring efforts with respect to salaried employees and executives have included aggressive cost actions as well as compliance with the terms of the U.S. Treasury loan agreement. Including actions already announced:

• Key executives have signed waivers prohibiting incentive compensation, bonuses, “golden parachutes” and severance payments;
• Suspension of salary merit program for 2008 and 2009, 401(k) company savings match and tuition reimbursement;
• Elimination of retiree life insurance; and
• We will continue to expect more from each worker as the organization reduces layers while increasing managers’ span of control.

Our U.S. Treasury loan also requires us to seek cost-savings actions with all key constituents. These actions include, but are not limited to, the following:

UAW – We have been meeting regularly with the UAW leadership and we appreciate their continued cooperation, including the agreement to eliminate the “jobs bank.” In addition, we are seeking cost reductions from a combination of:
• A restructuring of current and future VEBA (retiree health care) contributions, including a provision that future VEBA payments be made in company equity as well as cash; and
• Wage, benefit, work rules and job security provisions.

Dealers – We have sought the advice and counsel of our dealers, and we will seek their cooperation for the required concessions to meet the terms of the loan agreement and support for our viability plan including:
• The continued rationalization of the dealer network through Project Genesis;
• Review of vehicle margins;
• Review of dealer payments terms.

Suppliers – As the federal loan would provide adequate assurance for Chrysler’s continued ability to perform under its purchase orders with suppliers, the company will seek cost reductions from a combination of:
• Price reductions from all production and nonproduction suppliers;
• Collaboration with the company to implement shared cost savings;
• Freeze material cost increases for 2009; and
• Provide long-term contracts to incumbent suppliers for stability.

Banks and Lenders – Chrysler will seek:
• A reduction of indebtedness to levels that can be adequately supported by the company’s ongoing cash flow capabilities in our viability plan submission to be approved by the U.S. Treasury.

Owners – Cerberus Capital Management LP has previously agreed to:
• Forgo any benefit from the upside that would, in part, be created by the bridge loan and any other government assistance that the company may obtain;
• Accept a reduced share of its ownership in the company to provide equity for other constituencies contributing to this restructuring, including labor unions, banks, senior lenders and the government;
• In addition, Cerberus will work with Daimler AG to resolve their ownership stake.

Chrysler Financial – Chrysler will seek:
• Market competitive rates to dealers for wholesale and retail financing, and ensure capacity to handle its forecasted volumes through 2009.

Canadian government – Chrysler will seek:
• Completion of the bridge loan offered to auto manufacturers operating in Canada; and
• Collaboration to achieve cost savings with the expectation that the Canadian government will require similar terms to those required by the U.S. Treasury loan for all constituents including dealers, unions, suppliers, employees and banks.

Progress is being made in our discussions with every constituent group, and we’re especially pleased with the cooperative and productive discussions taking place. We recognize that the financial crisis that has brought hardship to Chrysler has created similar challenges for all our constituents. We are committed to working together to find ways to reduce costs while maintaining the business operations that will support our mutual and sustained viability for the long term.

In closing, we are looking forward to the federal government finalizing its vote for a new Secretary of the Treasury and the prompt appointment of other senior administration officials to oversee our viability plan and release the $3 billion balance of our original requested $7 billion loan. I want to also thank all of you for your efforts to drive revenue and reduce costs. I also want to recognize the teams of people who have been working tirelessly on the Fiat due diligence task as well as the preparation of the Feb. 17 viability plan update. Let’s continue to support each other and work toward establishing our viability.


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