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Message from Bob Nardelli

Posted Monday, Mar 16, 2009, 10:27 am in Company News

Dear Employees,

As part of our continuing effort to keep you informed on the status of our viability plan we submitted to the U.S. Treasury, I want to give you the following update. We have had a series of very constructive discussions with the U.S. Treasury and the Presidential Task Force on the Auto Industry since our Feb. 17 viability plan submission. In recent meetings, we have been impressed and encouraged by the task force’s thoughtful approach and the level of detail in their questions. During the dialogue, and in the additional data we have supplied in response to their requests, we have continued to emphasize that Chrysler is a viable business on a stand-alone basis and our future is further enhanced through the proposed global alliance with Fiat.

In our filing (which is available to the public) we showed clearly that with the addition of the $5 billion loan we requested, Chrysler would be able to continue paying the wages of our employees, the invoices of our suppliers, as well as investing in our future product plan. We would not have been able to achieve this without your hard work, dedication and commitment along with that of other key constituents. Fortunately, our early read of the industry started as you will recall, in November 2007. We took some very aggressive actions before others to restructure our business. As a result, much of the cash expense required for inventory reduction and restructuring is now behind us, and our dealers have achieved the lowest inventory levels among the domestic auto manufacturers.

I assure you, we are continuing to work collectively and determinedly with all constituents to successfully conclude negotiations by March 31, the deadline specified in our U.S. Treasury loan agreement. Throughout the process of seeking government assistance, our plan for viability has been based on a very conservative view of the auto industry, taking into account the current financial crisis and economic environment, which we believe will be with us through the end of 2009.

We were asked by the task force whether Chrysler is viable without a global alliance partner. Our answer is absolutely yes (and I am sure you will agree with me), even with a conservative forecast of U.S. auto industry sales trends. The table below shows our projections for seasonally adjusted annual rate (SAAR) of sales; earnings before interest, taxes, depreciation and amortization (EBITDA) and net debt, all of which was submitted to the government in our Feb. 17 viability plan.

Based upon the EBITDA projections and an improved net debt position, the company is well positioned for long-term viability. Our stand-alone plan keeps us on track for 24 product launches over the next 48 months, including a family of electric-drive ENVI vehicles that will help us meet CAFE requirements and support our country’s energy security and environmental sustainability goals. We will continue to work to improve our dealers’ profitability through our Genesis program and begin repayment of our U.S. Treasury loans in 2012.

What’s more, if we were to use the more optimistic SAAR assumption level of a competitor in the table below (which is public knowledge as a result of its submission), we would generate an additional $9 billion of cash flow over six years. We would be able to repay 100 percent of our taxpayer debt in five years, versus starting to pay our debt in 2012, as submitted in our stand-alone plan.

Our plan also included very conservative assumptions on net pricing. If we used even very modest positive pricing assumptions, as noted in the table below, we would generate an additional $7 billion of cash flow. When added to the $9 billion in cash flow from stronger sales, this would produce a total of $16 billion in additional cash flow, enough to pay off our debt in only four years.

Chrysler Stand alone

SAAR Level (millions)
2009 10.1
2010 10.6
2011 11.1
2012 11.6
2013 12.1
2014 12.6

EBITDA (billions)

2009 2.9
2010 5.0
2011 3.9
2112 3.9
2013 4.4
2014 4.7

Net Debt (billions)
2009 7.9
2010 7.8
2011 9.2
2012 8.6
2013 7.2
2014 5.6

Another important assumption of our viability plan is market share. We believe our forecast (that we will maintain a U.S. market share of approximately 10 percent) is appropriate, given our company’s history. Since 1992, we have lost only 2.4 percentage points of share in total, while each of our two domestic competitors has experienced a much larger share loss. In fact, each of our domestic counterparts recorded a 45 percent reduction in share during the same period. Our assumption of steady share is conservative, recognizing that we will launch 24 products in the next 48 months, which we’re confident will help us preserve, as well as gain modest share. It’s also worth noting that more than 70 percent of our 2009 products offer increased fuel economy compared with prior year models and that we continue to work on our full line of ENVI products. Our electric and range-extended electric vehicles that start to hit the market in 2010 will clearly give us a competitive advantage in meeting both consumer expectations and government regulations.

Our viability for the long term would be enhanced even more by global strategic alliances and partnerships. The proposed Fiat alliance provides significant benefits to Chrysler. Fiat would make available to us its entire product portfolio and powertrain technology, worldwide distribution capabilities for vehicles we produce today and synergies in the areas of purchasing and engineering, among others. We estimate the cash value of Fiat’s contribution to be between $8 and $10 billion considering the cost to develop these vehicles, platforms and powertrains from scratch. This is equal to or greater than the total amount of loans we have requested from the U.S. government. Even more importantly, Chrysler would save three to five years in development time, giving us a major competitive advantage. We would be able to offer our dealers exciting new products to help support their business. Because the Fiat vehicles, platforms and powertrains already have come up the learning curves of testing, validation and launch, startup issues already have been solved, which translates into improved quality and customer satisfaction. In addition, production of vehicles for Fiat in North America will allow Chrysler to increase its plant utilization, helping to preserve and create in excess of 5,000 manufacturing jobs. The overall contributions from Fiat and the synergies we realize will far exceed the value of the government loans.

Fiat’s vehicle lineup produces the lowest CO2 emissions of any major European automaker, allowing us to immediately adapt their technologies into existing and new platforms. Their product portfolio is a perfect complement to ours - allowing us to introduce vehicles in the A, B and C segments to compete with our domestic competitors. From a distribution standpoint, they are where we aren’t. For example, Fiat is No. 1 in Brazil and South America, and has agreed to help distribute our products worldwide. This is a unique alliance with clear advantages, enhancing our viability and job security while significantly advancing our ability to meet standards for emissions and fuel efficiency.

We’ve received many questions about what needs to happen to close our deal with Fiat. The good news is that the conditions are a mirror image of what the U.S. government asked us to achieve in our viability plan. We need to address financial restructuring, meet the government requirements on Voluntary Employee Beneficiary Association (VEBA) conversions, match the transplants in hourly wages and secure the additional U.S. government loans. Therefore, it is critical we meet all of our government requirements as the first step in finalizing the alliance with Fiat.

In February, we saw the benefit of the U.S. Treasury providing Chrysler Financial with $1.5 billion in Troubled Assets Relief Program (TARP) funds. With more credit available to our customers and dealers, we gained 1.4 points of retail market share in the month, coming in with an 11 percent share and climbing to the No. 2 spot in the United States in retail sales among domestic automakers.

In Canada, we finished No. 1 in sales in February for the first time in our 84-year history. Congratulations to our entire Chrysler Canada team! There has been a lot of media coverage recently regarding the future of our Canadian operations. To be absolutely clear about our requests and position in Canada, and our need to be competitive, I urge you to read our written testimony given at hearings before the Canadian government last week. The concessions we’re seeking for our Canadian operations are in line with those requested by the U.S. Treasury for Chrysler overall, and also are consistent with what Chrysler requires to be competitive in this challenging environment.

There is still considerable work and negotiations that must be completed to meet the government’s target date of March 31. I can assure you that we are working tirelessly to continue our progress with the assistance of the U.S. auto task force to meet the requirements set for us by the government. At this historic time, we need all of you to support our ongoing efforts, represent our company to all interested parties and get the word out to all our local, state and federal representatives that Chrysler is a viable business on a stand-alone basis. We’ve aggressively restructured our business to reflect the economic realities, significantly improved the fuel efficiency and quality of our product line and created a conservative plan for a viable future that is further enhanced through the proposed global alliance with Fiat.

Thank you again for your commitment and dedication to Chrysler.

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