Can the Government afford to prop up Chrysler for up to 3-years without product worth buying?
Wayne Gerdes –
CleanMPG – Feb. 17, 2009
Chrysler 200C PHEV – The only Chrysler product worth considering and it’s a concept at least 3 years away?
Auburn Hills, MI - Chrysler submitted its viability plan to the U.S. Treasury Department today outlining the Company’s plans to enhance its product lineup; complete its ongoing aggressive restructuring; and achieve cost reducing concessions from stakeholders.
The Company’s plan is required to be finalized by March 31. The submission outlines progress towards meeting the terms of the U.S. Treasury Department’s loan agreement related to achieving competitive costs and increasing fuel economy.
“On behalf of the men and women of our extended family, we thank the Administration and the Congress for the opportunity to continue the process of requesting federal loans to assist Chrysler LLC in the restructuring necessary to achieve long-term viability,” Chrysler LLC Chairman and CEO Robert L. Nardelli said. “We fully understand the need to adapt to significantly reduced annual U.S. sales and to national concerns over energy security and climate change.
Chrysler plans 24 vehicle launches in 48 months and will rely on electrification as a primary strategy for developing fuel-efficient, low emission vehicles, including an electric-drive vehicle in 2010.
Since Chrysler’s original $7 billion submission, there has been an even larger decline in the automotive environment.
Chrysler is continuing to blame the lack of credit to both the consumer and dealers, leading to reduced wholesale orders. From our analysis, this is a stretch of the truth when it comes to the consumer. Dealerships on the other hand are a problem all to themselves given the shaky financial position of the company and the dealerships themselves.
Chrysler revised their Seasonally Adjusted Annual Rate (SAAR) forecast reflecting the decline within the automotive marketplace to 10.1 million units this year and an average of 10.8 million units for 2009-2012. This represents a sales decline of another 180,000 Chrysler produced vehicles per year if they can maintain a 10 percent market share which is again, highly doubtful.
Based on the above, Chrysler will seek an additional $2 billion on top of the $3 billion that was requested in the original December 2 plan submission.
Plan Highlights
Strategic Alliance -- Chrysler signed a non-binding agreement to pursue a strategic alliance with Fiat that represents significant strategic and financial benefits to stakeholders. Supplying a fuel efficient product mix form Fiat is yet another recipe for disaster given Fiat’s poor reputation for quality and poor fuel economy.
Products -- The company will launch four new platforms: a new Jeep Grand Cherokee, a new Dodge Charger, a new Dodge Durango and a new Chrysler 300 all of which are selling well below industry norms. The hope of a steadying sales outlook while relying on these gas-guzzlers is a fairy tale at best and a fraud at its worst.
Fuel economy will improve in 2010 with the introduction of the all-new Phoenix V-6 engine although missing is the fact that 6 to 8% does not make for a sales leader let alone a sales laggard. The two-mode hybrid Dodge Ram is scheduled for 2010. Two-mode did not sell in the Durango/Aspen so why would the system sell in the in the Ram?
The first Chrysler electric-drive vehicle is also scheduled to reach the market in 2010. It will be followed by other electric-drive vehicles, including Range-extended Electric Vehicles, in the following years in order to further reduce fuel consumption. Given ENVI group was started less than 18-months ago, Chrysler is placing high hopes on a profitable BEV/PHEV for the American consumer in the near term? Highly doubtful.
Restructuring Actions- Reduced fixed costs by $3.1 billion since 2008
- Reduced its work force by 32,000 (a 37 percent reduction since January 2007)
- Eliminated 12 production shifts
- Eliminated 1.2 million units (more than 30 percent) of production capacity
- Discontinued four vehicle models
- Disposed of $700 million in non-earning assets
- Improved manufacturing productivity to equal Toyota as the best in the industry as measured by assembly hours per vehicle according to the Harbour Report
- Achieved lowest warranty claim rate in Chrysler’s history
- Recorded the fewest product recalls among leading automakers in 2008
Additional restructuring actions planned in 2009:
- Reduce fixed costs by $700 million
- Reduce one shift of manufacturing
- Reduce total manpower by 3,000 people
- Discontinue three vehicle models
- Take out 100,000 units of capacity
- Sell $300 million additional non-earning assets
Management Concessions -- Chrysler will fully comply with the restrictions established under section 111 of EESA relative to executive privileges and compensation. In addition, the Company has suspended the 401k match, incentive bonuses, merit increases and has eliminated retiree life insurance benefits.
Dealer Concessions -- Chrysler will achieve cost savings/improved cash flow through a number of initiatives including: reduced dealer margins, elimination of fuel fill, reduction of service contract margins. Reducing margins on a dealership network that is currently on life-support will not achieve any savings other then seeing the sales outlets disappear even sooner.
Union Concessions -- The signed term sheets for the UAW Labor Modifications and VEBA modifications fundamentally comply with the requirements set forth in the U.S. Treasury Loan and once realized would provide Chrysler with a work force cost structure that is competitive with the transplant automotive manufacturers. This agreement is subject to ratification.
Supplier Concessions -- The Company has initiated the dialogue with its suppliers and believes that it will be able to obtain substantial cost reductions from suppliers that will result in achieving targeted savings. Unfortunately, with suppliers being forced into bankruptcy from previous “Cost saving” initiatives by the Big 3 manufacturers, little can be gained.
2nd Lien Debt Holders Concessions -- Chrysler anticipates that the holders of their bonds will agree to convert 100 percent of their debt to equity. Chrysler’s Viability Plan includes
expectations to further reduce its outstanding debt by $5 billion in some manner yet disclosed?
All-in, more tax-payer money for a company that is wearing a very rosy pair of sunglass.
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