Nardelli putting a good face on grim reality.
Chrysler is asking U.S. taxpayers for an additional $2 billion to its original $7 billion loan request made to the U.S. Treasury Department last December. More money is needed because its revised estimates assume the U.S. industry will have a Seasonally Adjusted Annual Rate (SAAR) of only 10.1 million units for 2009, a 40 year low. The company also projects an average SAAR level of only 10.8 million units for 2009-2012. Payback of $9 billion in Chrysler loans with a premium would begin in 2012.
Chrysler said its submission demonstrates the company can survive. It is also pushing for an enhanced strategic alliance with Fiat, a controversial provision that gives off-shore Fiat access to the U.S. market for no exchange of capital. Significant progress meeting loan terms on competitive costs and increasing fuel economy were claimed. The United Auto Workers Union, dealers, suppliers and 2nd lien lenders’ concessions are “fundamentally” agreed upon. Details will not be provided until the Treasury Department releases them. Heath care and pension benefits to active employees and retirees would be maintained.
“We fully understand the need to adapt to significantly reduced annual U.S. sales … We believe that Chrysler LLC will be viable based on the updated assumptions contained in this submission,” said Chairman and CEO Robert L. Nardelli.
The UAW confirmed it reached tentative understandings with Chrysler, Ford and General Motors on modifications to the 2007 national agreements. Discussions are continuing regarding the Voluntary Employee Beneficiary Associations (VEBAs) at all three companies. “The UAW is withholding the terms of the tentative understandings pending completion of the VEBA discussions and ratification of the agreements,” said UAW President Ron Gettelfinger.
Chrysler remains opposed to the development of separate California and Eastern states fuel economy standards, requesting instead a “uniform national standard.” Democratic politicians have been pushing for much stricter standards in those states. This means the Obama administration will be forced to choose between two interest groups that helped elect him – organized labor and the environmental pressure groups.
Aspen and Durango trucks will not resume their now suspended production, and the PT Cruiser will cease production this summer. Chrysler plans 24 vehicle launches in 48 months, and announced electric technology as its strategy for developing fuel-efficient, low emission vehicles, including an electric-drive vehicle in 2010.
The following additional restructuring actions are planned in 2009:
• Reduce fixed costs by $700 million
• Reduce one shift of manufacturing
• Reduce total manpower by another 3,000 people
• Take out another 100,000 units of capacity
• Sell $300 million in assets
As required the company also submitted to Treasury a bankruptcy plan. Nardelli maintains, though, that an orderly restructuring outside of bankruptcy is the best option for Chrysler employees, our unions, dealers, suppliers and customers. Liquidation under Chapter 11 would require $20-25 Billion in taxpayer funds. A pure liquidation would only recover about 25% of lent money he estimated. Nardelli said that he hopes “Treasury agrees.”