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Press addresses Economic Club of Chicago

Posted Thursday, Feb 12, 2009, 3:28 pm in Company News

Chrysler LLC Vice Chairman and President Jim Press told an audience at the Economic Club of Chicago today that the auto industry and nation are at a crossroads and that industry and government need to work more closely together to meet our national needs. The text of Press’ speech before that group follows:__________________________________________________________

Good afternoon! It’s great to be here in a room full of economists; maybe instead of me talking, I can listen to you guys and get some help figuring out how to navigate our way through this financial mess we are in. No takers? OK. Well, you may remember, I was here two years ago, back when I was working for a different auto company.

I was asked to share some of my thoughts on the future. Here are the highlights of what I said:

· The economy is in pretty good shape.

· Fuel prices seemed to have stabilized in the mid-two dollar a gallon range.

· New-home sales should settle back to a “more normal pace.”

· Inflation is low… the jobs outlook is good.

· Detroit’s automakers should continue their recovery.

· Ergo my thesis: The future of our auto industry is another “Golden Era!”

And you invited me back??? There are only three reasons I can figure you invited me back:

· First, the nice people at this club who invite the speakers obviously missed my speech.

· Second, there must have been one huge, tasty vat of “voodoo economics” Kool-Aid from which too many of us, myself included, overindulged.

· And, third, Yogi Berra was right when he said: The future just ain’t what it used to be.

And I guess that applies to all of us, regardless of whether you’re a trader or publisher from Chicago or a car salesman from Detroit. So, now the trick is to move forward … from merely “intellectualizing” that concept to truly accepting it.

I can tell you we have accepted the fact that there really is a harsh new reality in the auto industry. Our world has changed dramatically. It began in the second half of last year:

· We saw fuel prices spike.

· Consumer confidence fall.

· And credit markets freeze.

It was literally an automotive nightmare.

This January we hit an annual sales rate we call SAAR – the key measure of U.S. auto market strength – of just under 10 million units.

To put that number in perspective, it’s the lowest “SAAR” since 1982.

When you index last month’s demand level for population it looks even worse. According to the February 6th issue of Automotive News, and I quote, “… adjusting that rate for 1980s population yields a demand level of 7.2 million — lower than any on record.”

It would be a mistake to assume that this “10-million market” is an aberration. Instead, we need to accept and come to grips with it.

At Chrysler, for example, we’ve built into our planning the contingency that sales could stay at this level for up to four years.

I’ve told our dealers that one day we may even look back on January of 2009 as the “good old days!”

Everyone in the auto industry is being forced to rethink everything. The good news is that this is also the opportunity to fix a lot of things that should have been fixed a long time ago. We now have this moment in time, with the world watching, to make the right long-term decisions for our company and industry.

And that’s been our approach at Chrysler LLC over the past year-and-a-half since we became a privately held, independent company. Today, we are an all-new company and are in the midst of an aggressive restructuring that will be completed under the auspices of our Viability Plan to be delivered to the Treasury Department by next Tuesday. Since 2007 our restructuring has:

· Reduced our dealer inventory by 19 percent or more than 90,000 thousand units;

· Discontinued four vehicle models to simplify our lineup;

· Disposed of $700 million in non-earning assets;

· And reduced total employment by 32,000 positions (36 percent) to the lowest level since 1934.

As a result, in the first half of 2008 we made good progress. In fact, June year-to-date we were even ahead of our profit plan and exceeded our production estimate for the period.

Unfortunately, even our strong actions have not been enough to support a long-term competitive position in this continuing economic downturn. To accomplish all of our aggressive restructuring goals, we also need all of our stakeholders to deliver concessions in line with the “10-million market reality”. This is a call for shared sacrifice across the board.

So far, we are making good progress with our suppliers who have been asked to meet reduced cost targets, and dealers who are making significant contributions. We are making progress with our union partners and are continuing to meet with the union and our debt holders to ensure we deliver a Viability Plan that will allow us to significantly reduce our costs.

And one of the key components of our Viability Plan will be the completion of the re-sizing of our corporation that we started a year and a half ago. When we complete our Viability Plan, we will have:

· Eliminated 1.3 million units of installed capacity, more than 30 percent; and

· And, reduced our fixed costs by more than $3.8 billion;

We very much look forward to delivering our Viability Plan to the Treasury Department and sharing with the American people, and our stakeholders, the progress we are making. We realize at Chrysler that this is a once in a lifetime chance. We can take a historical structural disadvantage and turn it into an advantage. It is this opportunity to be a part of an American renewal that has energized all of us involved.

And our obligation in exchange for this opportunity is to commit 100% of our efforts to deliver to the American people the quality and fuel efficient automobiles they deserve at attractive prices. We are confident we have the right plan and we will see Chrysler, again, be a symbol of American innovation and craftsmanship. We will restore Chrysler to once again be a great American icon.

Now of course, we have often said we can be viable on our own, but that mutually beneficial alliances and partnerships can be a very valuable part of long-term success. One example is our partnership with Nissan in which we will get a world-class B segment vehicle (that’s a small car) by 2010 and we will manufacture for Nissan a segment-leading pickup truck in our plants.

Just last month, Chrysler LLC and Fiat S.p.A. entered into a preliminary non-binding agreement to establish a global strategic alliance.

We believe this alliance could provide significant strategic benefits to support our viability and long-term competitiveness in the form of product and platform sharing, global distribution, and operational and business efficiencies.

The Fiat group is world renowned for their best-in-class fuel efficient small cars and trucks. Their lineup would complement our current product portfolio with environmentally friendly small cars and powertrain technology (including clean diesel). And these products could be build right here in our North American plants.

The alliance would greatly increase the global reach for our three brands in markets outside of North America. All in all, an alliance would help preserve American jobs and accelerate the availability of fuel efficient cars. Both good things!

It’s important to note that this alliance would adhere to the conditions of the U.S. government loan. No money from the U.S. Treasury would flow to Fiat. And repayment of government support will be our first priority as we regain profitability.

Speaking of the government, another part of this “new reality” is the heightened need for industry and government to work more closely together to meet national needs.

Unfortunately, industry – the auto industry in particular – and government have a long history of butting heads. That has to change. It’s the old way of doing things and clearly has not worked. We are thankful to America and the Treasury Department for providing us with bridge loan support and for giving us this opportunity to reinvent ourselves.

Now, we need to do what we do best – design, engineer and build great cars and trucks. And the government needs to do what it does best – set policies that ensure a stable, and preferably, growing environment.

Passing the stimulus bill will go a long way toward that end, helping to restore some much needed confidence in the U.S. consumer and the economy.

It’s a very good start to reversing the pessimism of the consumer, which is largely driven by the uncertainty over job security and the future performance of our economy.

We hope the final stimulus bill will include measures that will provide direct support to the two industries that typically lead our economy into and out of recessions – housing and autos.

Tax credits for advanced technology vehicles will help us move forward on our shared national priorities of lessening our dependence on foreign oil and reducing greenhouse gas emissions.

The tax deductibility of the interest on car loans and of sales taxes would be helpful as well.

However, it will not do us much good if our customers continue to be denied access to credit in the first place.

We have been working very hard to come up with creative solutions to the credit dilemma. However the trend of ever increasing credit score requirements by lenders combined with deteriorating consumer credit ratings severely constricts the pool of eligible customers.

Now, Chrysler Financial did receive a $1.5 billion loan from the TARP fund in January. There’s no mystery about where that money went and will go. It was immediately put to work in connection with our “employee pricing” and “0% financing” to help get the market moving again. And that is helping to improve our sales situation.

But, again, the lending restrictions are extraordinarily tight. Ironically, those customers who are eligible for credit tend to be among the rare group who don’t need it.

Our dealers tell us that 20-25 percent of our sales loss has been due to credit issues alone. And I know this problem is not unique to us!

We really need government help now to start thawing frozen credit markets once and for all. It’s time to aim the flamethrowers at this problem!

It does no good to build high-quality, greener vehicles if our dealers can’t borrow money to stock them. Or if customers can’t get financing to buy them.

Affiliated auto finance companies, such as Chrysler Financial, GMAC or Ford Credit, need access to funding now in order to fully support dealers and consumers.

And finally, perhaps the biggest of all government issues for our industry, we need to work together to tackle the looming issues of dependence of foreign oil and global warming. Again, for too long, industry and government have worked against each other and progress has been slow.

The volatility of gas prices, rising up to $4 a gallon gas this past year and back down, was not an aberration, it was real. And the fact that gas is less expensive today does not lessen the impact of the lesson we have learned. We need to build a more responsible automobile culture, and it will take government, industry and consumers to all get on board.

At Chrysler, we’re committed to meeting the fuel-efficiency and CO2 emissions challenge. And we believe advanced powertrains and electrification are the fastest and overall most cost-effective way to do so. That’s why we’ve made our capability as an electric-vehicle company the cornerstone of our future product strategy.

By the way, did anyone in this room know that Chrysler, with our GEM unit, already is the largest producer of electric-drive vehicles in the U.S. today?

Well, now you do! And there’s much more to come.

We’ll have 100 advanced propulsion electric-drive vehicles in fleet service this year.

We’ll build our first Chrysler electric vehicle for retail customers next year.

And we’re talking about some very exciting vehicles at that. Go see for yourself on the auto show floor. You can tell them “Jim sent you.”

Now, from our perspective there are several energy policy options that can help government and the auto industry work hand-in-hand to accelerate the adoption of “green” automotive technologies:

· We could provide consumer tax credits for buying fuel-efficient vehicles.

· The government could expand its support for technical research to bring down the cost of advanced technology. They are already doing this with the recent Department of Energy allocation of funds to support the development of advanced technology vehicles. Chrysler has applied for those loans in support of our future improved fuel efficiency.

And lastly, the auto industry would benefit from a unified regulatory structure.

Today in the U.S. there are three different voices on fuel economy and CO2 emissions — NHTSA, EPA and California. Each has an absolutely legitimate interest in greenhouse gas regulation.

I think most of us in business agree that it’s difficult and costly to serve several regulatory masters. We were pleased to hear the Obama administration indicate that while it wants to take a closer look at the California issue, it also sees the difficulties a patchwork of fuel economy regulations for each state would bring. Imagine if customers in Illinois and Indiana had different vehicles available in their dealerships because of different local fuel economy regulations? You would have customers running across borders to get the vehicles they need. And the greenhouse gas emissions in that state wouldn’t change a bit.

Our hope is that we can hammer out a single national standard that will be good for our environment, our customers, our society and our grandchildren.

In the end, ladies and gentleman, the one thing that has not changed since I was here two years ago is that the car business is not about government regulations and energy policies. Its about vehicles that reflect the passions of the people who build them and meet the needs of the people who buy them. It’s the minivans that your kids love and the pickup trucks you go to work with and the sports cars you are proud to show off in your driveway.

Please take a walk around the auto show this week and see what I mean. I think you will be very impressed by all of the vehicles the industry has to offer. But of course, if you go, please make sure you stop by the Chrysler, Jeep and Dodge display.

Our quality has never been better. According to internal warranty data, we have achieved the lowest claims rate in the history of the company, with a 30 percent improvement in the last 12 months alone. In addition, last year Chrysler had the fewest number of recalls of any manufacturer. And we’ve never built safer and more innovative vehicles. 88 percent of our 2009 vehicles achieved five-star ratings.

We continue to improve our fuel efficiency. We are developing a new Phoenix V-6 fuel-efficient engine family and are working on every aspect of the vehicles: from aerodynamics to reducing weight. In fact, 73 percent of our vehicles for the 2009 model year have improved mileage over the last year.

One shining example of all that is good at Chrysler is our 2009 Chrysler and Dodge minivans, which you can see on the auto show floor. No other minivan in the U.S. – foreign or domestic brand – delivers better fuel economy! With 17 miles-per-gallon in the city and 25 on the highway … our 2009 minivans are up to 8 percent better than the 2008 models.

And the minivans offer a number of segment-first features such as our Blind Spot Monitoring (BSM) accident-avoidance system and streaming Sirius Live TV. We believe in making that “family room” as safe and fun as possible. Hey, why not have a guilt-free Sunday cruise with the family up and down Lakeshore Drive? Our minivans are virtually family rooms on wheels!

Another great sign of Chrysler’s product strength are two trucks that we unveiled here at the show yesterday …the Dodge Ram Heavy Duty pickup and Cab Chassis lineup. These are powerful, efficient workhorses. Yet the interiors, like all the Ram trucks, have a level of refinement that raises the bar in their respective market segments. Anyone who wants to see how great Chrysler vehicles can be, should check out the new Dodge Ram.

And, we have continued to heavily invest in future products.

Chrysler’s core strength is based on our ability to build: emotionally compelling; viscerally rewarding; environmentally responsible; high-value, high-quality cars and trucks, that don’t ask our customers to compromise anything.

We have 24 major launches on tap in our product plan that we’ll roll out over the next 48 months; eight in the next year and a half alone!

So, that brings me back to the future and that “profound” thesis, “the future just ain’t what it used to be.” And you know what? That’s OK by me.

Because maybe the past wasn’t all it was cracked up to be anyway.

Frankly, the domestic auto industry had lost its way. We didn’t always deliver the quality in our products that our customers deserved. We didn’t take the lead on developing new fuel-efficient technologies as we should have. We lost sight of the customer. And we seemed to spend more energy fighting with government than we did finding ways to work together.

We knew there was a better way when we formed the new Chrysler 18 months ago. And we were making progress and when we were just getting the ship turned around we hit one hell of a storm, the worst market in recorded history. And now we need some help to ride it out. It’s a challenging and humbling experience.

It means taking the difficult steps and tough measures to restructure our businesses for the new reality.

It means getting industry and government to work more closely together to meet our national needs – as we work to help support key industries, stimulate the economy, open credit markets and develop a coherent energy policy.

No matter which way you may have voted, with a new Administration — and one with Chicago roots at that — comes the chance to rethink everything.

Our industry and this country are at a crossroads. But we should look at this as the historic opportunity it really is.

Hope and change may be national slogans – popularized by Chicago’s most famous citizen – but they are particularly meaningful to the auto industry.

At Chrysler, we feel we have a special bond with America and the American taxpayers. We now have a responsibility to deliver on their investment by building a viable company and producing high quality desirable products that serve society.

I can assure you that we’re going to give everything we have to hold up our end of the bargain … and to make our contribution to get our country and national economy back on track, and preserve our American way of life.

Thank you for attention. I have very much appreciated being with you this afternoon.

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