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Nardelli’s e-mail briefs employees on testimony, plans

Tuesday, Dec 2, 2008 at 6:00 pm in Messages From Our Leaders

The following e-mail was sent by Chairman and CEO Bob Nardelli to employees this afternoon.

Dear Employees,

This afternoon, Chrysler submitted to Congress an 18-page overview and a full 120-page plan detailing our plans for future viability as part of our request for a federal bridge loan to help us get through the current economic crisis and continue our transformation of Chrysler.

The plan addresses all the points spelled out in the letter we received from House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. I will appear on your behalf before the Senate Banking Committee on Thursday and the House Financial Services Committee on Friday to discuss our plans and answer questions from the committees. I will drive one of the company’s fuel-efficient hybrid vehicles to get there.

The plans we submitted to Congress answer the questions we’ve heard most often over the past few weeks, and I’d like to share a brief overview with you.
What changes has Chrysler made to help itself?

Since Chrysler became an independent company in 2007 and started our recovery and transformation to return to profitability:

• We eliminated 1.2 million units of capacity, or 30 percent

• We reduced fixed costs by $2.4 billion and separated more than 32,000 employees

And at the same time:

• We invested in product improvement, including a half a billion dollars in our first 60 days

• We improved our latest J.D. Power quality scores and reduced our warranty claims by 29 percent

• We began transforming our business model through alliances and partnerships—including cooperative manufacturing agreements with VW and Nissan

As a result of the changes we made, Chrysler met or exceeded our operating plan through the first six months of the year, ending the first half with $9.4 billion in unrestricted cash.

In addition, as part of the shared sacrifice at all levels required of the plan, we are suspending the company match of 401(k) contributions. This is an action that we have taken before during tough times, and it is one we regrettably are forced to re-enact now

Why does Chrysler need the funding?

We need to address the unprecedented drop in vehicle sales caused by the financial crisis that interrupted our business transformation. U.S. sales are down from a 17 million unit selling rate in early 2007 to an annual selling rate of 11 units million for the fourth quarter in 2008—a 38 percent decline. We lost 20 percent of our sales virtually overnight when the financial market crisis forced us out of the consumer lease business. With customers not buying, with dealers not ordering, with our plants not producing, Chrysler’s cash inflow has suffered.

How will the bridge loan be used?

Cash will support ongoing operations as we continue to restructure the business, including in the first quarter alone:

• $8 billion in payments to parts suppliers

• $1.7 billion for other suppliers

• $900 million in wages

• $500 million in health care and legacy costs

• $500 million in capital expenditures

Without an immediate working capital bridge, Chrysler’s liquidity could fall below the level appropriate to ensure ordinary operations by the first quarter of 2009.

Who is contributing to saving Chrysler?

First and foremost, Chrysler and its extended enterprise will. That starts with me. I receive a salary of $1 a year. I have no employment contract, no change of control agreement, no “golden parachute” and receive no health care or life insurance benefits from the company.

The suspension of the 401(k) match is part of this shared sacrifice. In addition, we are committed to negotiate concessions from all our constituents. In total, we’ve identified more than $8 billion in potential savings over the four-year period. Conservatively, only half of that is included in our projections.

How does Chrysler plan to build cars and trucks that consumers want to buy and that support the country’s energy security and environmental goals?

Our product plan features 24 major launches from 2009 through 2012. For the 2009 model year, 73 percent of our products offer improved fuel economy compared with the 2008 models. We’re also launching new smaller, fuel-efficient vehicles in conjunction with business partners.

ENVI is our breakthrough family of all-electric and range-extended electric vehicles. Our first electric-drive vehicle is planned for 2010, with three additional models by 2013. Chrysler’s product plan also includes the introduction of the Ram Hybrid in 2010.

Does Chrysler have a viable plan?

With federal assistance, we absolutely have a viable plan. I also believe that further partnership, restructuring and consolidation would make the U.S. auto industry more viable and competitive in the long run. Further opportunities for technology sharing would provide fuel-efficient cars and trucks more cost effectively, and with greater speed to market.

The three-company alliance that developed the dual-mode hybrid is a good example. As a country, we should not trade our dependence on foreign oil for a new dependence on foreign technologies.

When will Chrysler pay back this loan?

We will be well positioned to begin repayment of the federal loans in 2012. We recognize that this is a significant amount of public money. However, this is the least costly alternative considering the depth of the economic crisis and the options we face.
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