Dodge Nitro Forum banner

1 - 4 of 4 Posts

·
Super Moderator
Joined
·
23,872 Posts
Discussion Starter #1
Obama to give GM 2 months to restructure

03/30/09

WASHINGTON The White House forced the resignation of General Motors' top executive Sunday, on the eve of announcing new aid and a 60-day deadline for the ailing auto giant to restructure. Chrysler LLC will get up to $6 billion and 30 days to complete an alliance with Italian automaker Fiat SpA.

Two people familiar with the plan said Sunday it will demand further sacrifices from the automakers and bankruptcy would still be possible if the automakers failed to restructure. The officials spoke on condition of anonymity because they were not authorized to make details public.

President Barack Obama was announcing his plan on Monday. It includes government backing of warranties for GM and Chrysler vehicles to give consumers confidence in the U.S. automakers' cars and trucks.

Administration officials said Sunday that General Motors CEO Rick Wagoner was stepping down immediately at the request of the White House, a sign of major changes at the auto giant.

GM has already received $13.4 billion in government loans and Chrysler has survived on $4 billion in federal aid. The automakers have been hard hit by the economic downturn and the worst decline in auto sales in 27 years. In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.

But the officials said the Obama plan would not go that far, providing short-term aid in exchange for significant sacrifices.

The officials said the administration did not view Chrysler to be viable as a standalone company. Under the plan, the government would provide up to $6 billion to forge the alliance between Chrysler and Fiat, but if the companies failed to reach an agreement or find an alternative plan for viability, Chrysler would not receive additional federal aid.

Fiat executives have talked to the White House auto task force about a proposal to acquire a 35 percent stake in Chrysler in exchange for small car technology, transmissions and other items that Chrysler has valued at $8 billion to $10 billion.

General Motors, meanwhile, would have a limited window to work with the United Auto Workers union, bondholders and other stakeholders and would receive an undisclosed amount of "interim financing" over 60 days to restructure the company. The officials said the administration would determine how much GM would need in "permanent capital" during the 60-day period.

If GM failed to reach the concessions needed, some type of bankruptcy could be used at the end of 60 days, the officials said.

The administration planned to send a team to Detroit to help with the restructuring during the next 60 days. With Wagoner's departure, new management would be decided by General Motors' board of directors in consultation with the government. An official said a majority of the GM board was expected to step down.

Obama, in an interview with CBS' "Face the Nation" broadcast Sunday, said the companies must do more to receive additional financial aid from the government.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge — at the other end — much more lean, mean and competitive than it currently is," Obama said.

Obama said the government would require a "set of sacrifices from all parties involved, management, labor, shareholders, creditors, suppliers, dealers. Everybody's gonna have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road."

Both companies are trying to reduce their debt by two-thirds and persuade the UAW to accept several cost-cutting measures.

Very little was being done in negotiations with debtholders and the union ahead of Obama's announcement, a person briefed on the GM talks said Sunday. This person did not want to be identified because the negotiations are private.

Under the terms of a loan agreement reached during the Bush administration, GM and Chrysler are pushing the UAW to accept shares of stock in exchange for half of the payments into a union-run trust fund for retiree health care. They also want labor costs from the union to be competitive with Japanese automakers with U.S. operations.

Neither GM nor Chrysler have deals with the union on the trust funding or concessions from their debtholders and the administration has been trying to accelerate those efforts.

GM and Chrysler, which employ about 140,000 workers in the U.S., face a Tuesday deadline to submit completed restructuring plans, but neither company is expected to finish its work. The administration's plan would be designed to accelerate those efforts.

GM owes roughly $28 billion to bondholders. Chrysler owes about $7 billion in first- and second-term debt, mainly to banks. GM owes about $20 billion to its retiree health care trust, while Chrysler owes $10.6 billion.

In February, GM said it intended to cut 47,000 jobs around the globe, or nearly 20 percent of its work force, close hundreds of dealerships and focus on four core brands — Chevrolet, Cadillac, GMC and Buick.

Chrysler issued two scenarios in its February plan: one as a distinct company, and the second in an alliance with Fiat. Chrysler said in its February report that it would cut 3,000 workers and eliminate three vehicle models, the Dodge Aspen, Dodge Durango and Chrysler PT Cruiser.

LINK: The Associated Press: Sources: Obama to give GM 2 months to restructure
 

·
Super Moderator
Joined
·
23,872 Posts
Discussion Starter #2
Nardelli responds to president’s plans

Nardelli responds to president’s plans

Posted Monday, Mar 30, 2009, 11:55 am in Company

Dear Employees,

Today’s announcement by the Administration represents an important step forward on our path to viability. The Administration, U.S. Treasury and the President’s Auto Task Force have recognized Chrysler’s viability as an important part of the U.S. auto industry and overall economy, and have provided a critical vote of confidence in our alliance with Fiat S.p.A.


We are appreciative that the government has supported a global alliance with Fiat. By providing Chrysler with product and platforms, technology cooperation and global distribution, the alliance with Fiat strengthens our ability to create and preserve U.S. jobs; to give U.S. consumers more choices of environmentally advanced vehicles; to give our dealers more of the products they need to succeed; to help stabilize the supplier base; and to pay back government loans sooner.

While the Administration’s findings released today recognize our progress in reducing structural costs and improving quality, the report also cites the challenges that continue to face Chrysler in the areas of scale, quality, product mix, manufacturing and geographic concentration. However, the important point is that the task force concludes that the Fiat alliance will go a long way toward addressing these concerns. Going forward, the Administration has committed to provide working capital for the next 30 days as we achieve the necessary stakeholder concessions, and further our restructuring efforts.

So while today’s news is a step in the right direction, we need to continue to manage our business through the current downturn. We need everyone to focus on controlling costs while improving quality and customer satisfaction. There also is much work remaining to achieve required concessions from important constituents to reach the restructuring targets that the government has established.

In addition, as we add more exciting, fuel-efficient vehicles to our showrooms it will be important that our customers have access to credit. That’s why we continue to advocate further government support for Chrysler Financial in order to make reasonable loans available to many more consumers.

I want to thank you for the hard work and dedication that you have given to Chrysler during the past 18 months. While we know our quality is not yet where it needs to be, our improvement is clearly evident in the 30 percent reduction in warranty claims over the last 12 months, and the fact that Chrysler reported the fewest safety recalls of any major manufacturer in 2008. We also have continued to advance important new vehicle programs such as the all-new Dodge Ram, the electric-drive vehicles under development by our ENVI organization and the all-new Jeep Grand Cherokee that we will showcase next week at the New York Auto Show. We have continued to improve the fuel economy of our lineup, with 73 percent of our 2009 models offering improved fuel efficiency compared with the previous year’s models, and we are well positioned to meet the more stringent fuel economy requirements coming in 2011.

I want to personally assure you that Chrysler will operate “business as usual” over the next 30 days. While we recognize that we still have substantial hurdles to resolve, Chrysler is committed to working closely with Fiat, the Administration, U.S. Treasury and the Task Force over the next 30 days to secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed.

Thanks again for your continued support as Chrysler continues to move forward on its path to viability.

Bob
 

·
Super Moderator
Joined
·
23,872 Posts
Discussion Starter #3
Viability Determination Summary

Determination of Viability Summary March 30, 2009
Chrysler, LLC


Chrysler February 17 Plan
Viability Determination Summary

The Loan and Security Agreement of December 31, 2008 between Chrysler, LLC and the United States Department of the Treasury (“LSA”) laid out various conditions that needed to be met by March 31, including the approval of Labor Modifications, VEBA Modifications, and the commencement of a Debt Exchange (all as defined in the LSA). As of the date of this memo, the above steps have not been completed, nor are they expected to be completed by March 31. As a result, Chrysler has not satisfied the terms of its loan agreement. Additionally, after substantial effort and review, the President’s Designee¹ has concluded that the Chrysler plan is not likely to lead to viability on a standalone basis, and that Chrysler must seek a partner in order to achieve the scale and other important attributes it needs to be successful in the global automotive industry while Chrysler operates under an amendment to the existing LSA.

This determination of viability was based on a thorough review, as conducted by the Task Force and its outside advisors and as summarized below, of the Company’s submitted plan and prospects. While there were many individual considerations, no single factor was critical to the assessment. Rather, the ultimate determination of viability was based upon a total consideration of all relevant factors, taken as a whole.

The Plan that was submitted by Chrysler on February 17, 2009 reflects some progress that has been made under current management but ultimately is insufficient due to several structural issues that Chrysler, as a standalone entity, is highly unlikely to overcome. In particular, Chrysler’s limited scale in an increasingly capital-intensive global business, the inferior quality of its existing product portfolio and its heavy truck mix leave the Company poorly positioned. Chrysler’s plan to address these issues is based on overly optimistic assumptions that are inconsistent with its current products and its resources. A few key challenges:

Scale: Chrysler cannot afford to dedicate enough R&D to each product platform to maintain competitiveness, suffers from having a smaller supply purchasing base and amortizes its significant fixed costs over a much smaller base of vehicles than its competitors

Quality: While the Company is committed to improving quality, its current quality scores significantly lag competitors. Chrysler admits that improving quality and associated brand perception will take a number of years.

Product Mix: Chrysler does not have a product pipeline to cover the smaller car segments which are projected to grow in share of the overall car market and will struggle to meet proposed fuel-efficiency standards.

Manufacturing: In contrast to best-in-class OEMs, as well as both GM and Ford, Chrysler has not invested significantly in common architectures and flexible plant manufacturing capacity, which will be critical to longterm profitability.

Geographic Concentration: Unlike many of its competitors, Chrysler’s business is heavily weighted to North America, which makes the Company more vulnerable to local economic fluctuations and less able to take advantage of developing markets.

While the Company has made meaningful changes to its cost structure in the last few years, the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging. As a result, the President’s Designee has found that Chrysler’s plan is not viable as currently structured. However, to the extent Chrysler can develop a partner who would improve Chrysler’s scale, bolster its product development, and allow it to enter the small car market with a robust set of products, Chrysler has some prospects for long term viability.

Detailed Determination
The Loan and Security Agreement of December 31, 2008 between the Chrysler Corporation and the United States Department of the Treasury (“LSA”) laid out various conditions that needed to be met by March 31, including: (a) Approval of the Labor Modifications (Compensation Reductions, the Severance Rationalization and the Work Rule Modifications) by the members of the Unions; (b) Receipt of all necessary approvals of the VEBA Modifications other than regulatory and judicial approvals; provided, that the Borrower must have filed and be diligently prosecuting applications for any necessary regulatory and judicial approvals; and (c) The commencement of an exchange offer to implement a Debt Exchange.

As of the date of this memo, the above steps have not been completed. As a result, Chrysler has not satisfied the terms of its loan agreement.

The LSA also requires that the President’s Designee review the Restructuring Plan Report in order to determine whether Chrysler has taken all necessary steps to achieve and sustain the long-term viability, international competitiveness and energy efficiency of the Company and its subsidiaries.

Since receiving the Company’s plan on February 17th, the Government has engaged in substantial efforts to assess its viability. This work has involved staff from the Department of Treasury, National Economic Council, Council of Economic Advisors as well as the numerous other Cabinet agencies involved in the President’s Task Force on the Auto Industry. The working group has also worked extensively with several dozen individuals at industry-leading consulting, financial advisory and law firms. Numerous outside experts and affected stakeholders have been consulted. Based on this work, the President’s Designee has concluded that the Chrysler plan is not likely to lead to viability on a standalone basis, and that Chrysler must seek a partner in order to achieve the scale and other important attributes it needs to be successful in the global automotive industry.

While the President’s Designee considered many factors when assessing viability, the most fundamental benchmark was the following: for a business to be viable, it must be able – after accounting for spending on research and development and capital expenditures necessary to maintain and enhance the company’s competitive position — to generate positive cashflow and earn an adequate return on capital over the course of a normal business cycle.

The Plan that was submitted by Chrysler on February 17, 2009 reflects some progress that has been made under current management but ultimately is insufficient due to several structural issues that Chrysler, as a standalone entity, is highly unlikely to overcome:

Progress to date:

• Chrysler has made meaningful progress, and identified a great deal more opportunity, in reducing its cost structure as part of a major operating restructuring: Structural costs: The Company plans to reduce structural costs by 29% from 2007 to 2009. These improvements are driven largely by aggressive reductions in salaried headcount, which is expected to fall by 60% from 2000 to 2010. Capacity utilization: The plan contemplates the reduction of manufacturing capacity by 1.3M units in order to respond to a depressed global auto market. The manufacturing capacity will be eliminated mainly through the closure of two assembly plants and five engine plants from 2009 to 2014. Wage rate rationalization: The Company projects that its US hourly wage rate will reach benchmark levels by 2010. These assumptions are based on current negotiations, which have yet to be finalized.

• Chrysler’s plan also focuses on improving product quality, which has historically lagged at Chrysler: Since the formation of Chrysler LLC, there has been a renewed effort to increase the quality and interior content of vehicles, although quality often takes many years to significantly improve and the perception of quality can lag still further. Importantly, current market research by independent experts does not suggest any significant improvement in customers’ perception of Chrysler product quality.

In short, Chrysler’s current management team has made meaningful progress in addressing the areas under which they have the most control, particularly on a short-term basis. However, Chrysler suffers from a number of structural disadvantages that can not be addressed on a standalone basis. In particular, Chrysler’s limited scale in an increasingly capital-intensive global business, the poor quality of its existing product portfolio and its heavy truck mix leave the Company poorly positioned. Chrysler’s plan to address these issues is based on overly optimistic assumptions that are inconsistent with its current products and its resources.

• Chrysler’s smaller scale has broad implications for its business, both at the top line as it seeks necessary improvements in its product portfolio and at the bottom line as it seeks to improve its cost structure. Product Development: Chrysler’s scale limits its product development budget overall, and particularly limits the amount the Company can spend developing each platform. Chrysler currently dedicates only 50% as many engineers to each platform, on average, as GM does. Furthermore, Chrysler has much lower volume platforms, on average, than most of its competitors, and these lower volume platforms mean that Chrysler must amortize its R&D and capital expenditures over a much smaller base. This, of course, limits the Company’s ability to innovate and develop new product. Purchasing: Due to its limited scale, the Company is unable to exert leverage on suppliers to reduce its cost of goods. For example, GM’s average yearly global buy is ~$90B, whereas Chrysler’s is ~$20B. Fixed costs: Chrysler’s more limited scale means that some of its fixed costs are spread over a smaller base. As a result, Chrysler has a significant disadvantage on fixed costs (estimated at approximately 3-4% of revenue), which translates into several hundred dollars per car of reduced profit.

• Chrysler’s products have also historically underperformed in terms of quality, which remains a significant challenge: Quality Ratings: Chrysler has low quality scores across all of its brands, and perceived quality lags the best-in-class OEMs (2008 IQS of 147 for Chrysler versus 105 for Toyota). Moreover, every single one of Chrysler’s brands are in the bottom quartile based on JD Power APEAL scores. Finally, a recent Consumer Reports article listed Chrysler last in terms of the number of recommended nameplates in its portfolio (zero Chrysler nameplates were recommended). By contrast, all of GM’s continuing brands outperform Chrysler on an IQS basis and, on average, substantially outperform on APEAL scores. Timeframe: While there has been a renewed focus on quality since January 2008, Chrysler admits that improving quality and associated brand perception will take a number of years, as about 40% of quality issues (IQS/100 vehicles) are design related and are typically not addressed until a new product is developed.

• The Company is burdened with an unfavorable product mix, which may create further disadvantage in the evolving marketplace: Market tastes and shifts: Chrysler does not have a product pipeline to cover the smaller car segments which are projected to grow in share of the overall car market. Chrysler’s shares of the small and medium car markets are 3% and 7%, respectively (while each category represents 21% and 25% of the market, respectively), and has been declining in each segment. Current focus: In the near term, Chrysler is planning to lift profitability by focusing on its more profitable truck and SUV segments. Given the potential variability in fuel prices, Chrysler’s volume assumptions for these cars may be at risk. CAFE standards: Chrysler’s product strength is in the pickup, SUV, and minivan segments – all of which are relatively low in fuel efficiency. On a standalone basis, Chrysler will struggle to comply with increasing fuel efficiency standards, and it may even have to restrict the sale of certain models to make sure it is in accordance with proposed standards.

The limitations imposed on Chrysler by its smaller scale permeate its ability to manage its business and hinder its hopes of improving its fortunes. For example:

• Given Chrysler’s limited financial resources, it can not make the necessary catch-up investments in R&D required to refresh its portfolio and bring it up to par with its competitors. So, while Chrysler’s declining competitive position demands that it makes substantial investments in new products and a more diversified mix of products, its own plan projects the following: Limited new products: The 2009 through 2014 product plan delivers only four new nameplates under the current Chrysler umbrella, with potential for additional nameplates only through a partnership. Powertrain development: While Chrysler is investing in newer powertrain development, as are all the OEMs, its limited resources lead it to project spending just over 3% of revenue on R&D over the next five years, versus 4-5% for General Motors, Toyota and Honda. Small cars: Chrysler’s standalone plan does not provide for a substantial entrance into the small car segments – an area that will be increasingly important to automotive manufacturer profitability if potential gasoline price hikes meaningfully increase demand for smaller, more fuel-efficient cars and as CAFE standards demand a higher mix of small cars.

• Chrysler also lags its competitors in terms of manufacturing flexibility: Virtually all industry observers and outside experts agree that increasing flexibility in the manufacturing footprint is critical to driving long-term profitability in the global automotive industry. In contrast to other best-in-class OEMs, as well as both GM and Ford, Chrysler has not invested significantly in common architectures and flexible plant manufacturing capacity to build multiple platforms in a given plant. Chrysler is planning to invest in more flexible capacity but is behind both the transplants and GM in this capability. This lag increases Chrysler’s risk to market segment shifts and individual product acceptance. For example, of the nine plants Chrysler is targeting to have by 2013, only two will be flexible across multiple platforms (compared to ~80% of GM plants).

Given these substantial obstacles, the assumptions in Chrysler’s business plan are too aggressive:

Market share: Chrysler’s plan assumes that it maintains its current market share, although the Company has consistently lost share over the last decade. Chrysler has lost five percentage points of market share since the height of its share, at 16.2%, in 1998. This loss has occurred across all segments, even within its historically strong minivan offerings, where share has declined from 39% to 33% since 2006. The plan projects market share to stabilize at 10.7% and assumes that Chrysler will be able to find partnerships to launch new products in a very competitive market. Continued share erosion in line with recent history would translate into several billion dollars of increased losses over time. Unlike GM, which has had a number of successful recent product introductions and has developed a new global product development process that has promise, there are few tangible signs that Chrysler can reverse its share erosion. In fact, the gap in perceived brand quality for Chrysler, Dodge and Jeep relative to their competitors has increased meaningfully over the last several years, suggesting that Chrysler’s market share, if not for significantly increased incentives that have further eroded profitability, is even more vulnerable than history suggests.

Financing: The viability plan relies on Chrysler’s captive financing arm to provide a significant amount of financing, which may prove challenging: In general, Chrysler’s customer mix is skewed to a lower FICO score buyer (in the first quarter of 2008, approximately 34% of buyers were subprime or near-subprime), so the current financing environment disproportionately hurts traditional Chrysler buyers’ ability to purchase a new car. Given the separation and independence of Chrysler Financial and increased credit standards, it is unlikely that demand will return to the robust levels of recent years in the near term. In 2008, 48% of financing for Chrysler buyers was provided by Chrysler Financial. The captive finance unit has substantial financing challenges of its own in the current financing environment, so future demand may depend on Chrysler finding alternate lending sources.

Price realization: Chrysler also assumes only a modest decline in price realization despite entering highly competitive segments: Given the quality gap from which Chrysler suffers, it will be challenging to maintain pricing as projected. Even more importantly, the Company projects providing lower incentives than it has provided in its recent history – at a level of more than 25% less than the recent historical average. If the incentives were “normalized”, based on the average of 2006 - 2007 incentives, the Company will lose consistently between $500 million and $1 billion per year from 2010 to 2014 on an EBIT basis. This is inconsistent with the Company’s recent history with regard to incentives, in which increasingly larger incentives still translated into continued share erosion.

Variable margin: The plan also includes a constant variable margin assumption, despite a shift to producing lower margin vehicles. The primary drivers of this assumption are improved price realization and a reduction in cost of goods fueled by material cost management and supplier concessions of 3%, which may prove difficult given Chrysler’s limited scale and distressed supply base.

While the Company has made meaningful changes to its cost structure in the last few years, the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging. As a result, the President’s Designee has found that Chrysler’s plan is not viable as currently structured. However, a partnership with another automotive company, such as Fiat or another prospective partner, which addresses many of these issues could lead to a path to viability for Chrysler.
 

·
Super Moderator
Joined
·
23,872 Posts
Discussion Starter #4
Current Owners NOT Covered!

Obama Warranty Plan Leaves Many GM, Chrysler Owners Vulnerable
Under the so-called Warranty Commitment Program unveiled by President Obama, the government will cover 110 percent of an accounting reserve established to cover 125 percent of projected warranty costs for each new vehicle sold by GM and Chrysler.


But Uncle Sam won't stand by warranties held by current vehicle owners or safety recalls, which can occur years after the warranty expires. That would leave uncovered about 10 million to 15 million GM and Chrysler vehicles bought in the past couple years, said Clarence Ditlow, executive director of the Center for Auto Safety.


Just call him Mr. Goodwrench.

That's what President Obama is telling American car owners and buyers, making them an offer they can't refuse: If General Motors or Chrysler won't honor their warranties, he will.

Playing pitchman for the ailing U.S. auto industry, Obama on Monday offered guarantees on the warranty of every new vehicle sold by the Detroit automakers during their restructuring efforts. Obama said with additional incentives for new car buyers, the industry could sell an additional 100,000 new cars this year.

But Uncle Sam won't stand by warranties held by current vehicle owners or safety recalls, which can occur years after the warranty expires. That would leave uncovered about 10 million to 15 million GM and Chrysler vehicles bought in the past couple years, said Clarence Ditlow, executive director of the Center for Auto Safety.

Under the so-called Warranty Commitment Program, an accounting reserve must be established that contains 125 percent of the projected warranty costs for each new vehicle sold by GM and Chrysler.

Automakers will contribute 15 percent of those costs from their own funds while the U.S. government will cover the remaining 110 percent from the Troubled Asset Relief Program, the Treasury Department Web site says.

A separate company will be established to manage the funds and will continue to pay warranty claims even in the worst case scenario: automakers go into bankruptcy or out of business.

If that happened, the warranty administrator and the U.S. government will search for a third-party warranty service provider to assume responsibility for all the warranties covered by the program in exchange for the assets of the program.

"If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always," Obama pledged Monday. "Your warranty will be safe. In fact, it will be safer than it's ever been. Because starting to day, the United States government will stand behind your warranty."

Ditlow pointed out that plenty of legitimate claims are denied by warranty companies and the program offers no details about how the government would honor claims.

He added that among the biggest unknowns are the ability to find third-party warranty service providers to perform the work and ensuring a continual flow of parts if the automakers go into bankruptcy or out of business.

"It's a good idea but it's not a proven plan to date," he told FOXNews.com. Obama "has the right concept but there's no guarantee in that warranty plan."

Ditlow said he received a number of complaints from Daewoo owners when that South Korean car company went bankrupt and GM bought some of its assets but none of its liabilities.

"For vehicle owners, if GM or Chrysler goes into bankruptcy, get ready to lobby to have your debt recognized," he said. "And that debt is your warranty."

The White House nor the Treasury Department responded to requests seeking comment.

But the National Automobile Dealers Association said it also isn't impressed by Obama's plan.

"We are encouraged by President Obama's commitment to putting the domestic auto industry back on the road to recovery but continue to urge the administration to focus immediately on correcting the dysfunctional credit markets," the organization said in a statement, adding that bankruptcy should not be an option.

"It would further erode consumer confidence and, therefore, our ability to sell at the retail level. Moreover, it would further exacerbate the availability of credit."

LINK:Obama Warranty Plan Leaves Many GM, Chrysler Owners Vulnerable - First 100 Days of Presidency - Politics FOXNews.com
 
1 - 4 of 4 Posts
Top