Chrysler Needs Extra Billions To Continue; 3,000 More Jobs Cut
February 17, 2009
AUBURN HILLS, Mich. -- Chrysler's viability plan submitted late Tuesday to the U.S. Treasury
Department asks for another $2 billion in federal loans, bringing its total request to $9 billion.
The additional $2 billion request means Chrysler is seeking $5 billion by March 31 -- rather than $3 billion -- that it says is required to continue operations.
Chrysler's preliminary "viability plan" said it will eliminate more jobs -- another 3,000. It also will rid itself of three more models -- Dodge Durango and Chrysler Aspen and PT Cruiser -- and another production shift. In addition, Chrysler said it has a framework for an agreement of cost-saving concessions from the United Auto Workers (UAW) union, its dealers, its suppliers and second-lien lenders.
U.S. Conditions Still Deteriorating
Chrysler so far has received $4 billion of the $7 billion it originally requested during Congressional hearings late last year.
However, Chrysler CEO Robert Nardelli noted that since its original request in December, the U.S. automotive market has seen an "unprecedented decline." Nardelli said Chrysler needs the newly requested amount of $5 billion by March 31, pending government approval of its viability plan submitted Tuesday.
In addition to asking for more government funding, Chrysler also said it will eliminate another 3,000 jobs this year. Throughout 2008, Chrysler had chopped 32,000 jobs, or 37 percent of its workforce.
The public portion of the report made no mention of future products potentially coming from Chrysler's proposed alliance with Fiat, but Nardelli said several times that an alliance with Fiat would "enhance" Chrysler's long-term viability.
In all, Chrysler said new moves specified in the restructuring plan include:
> Elimination of 3,000 jobs
> Further reduction of $700 million in fixed costs
> Sale of an additional $300 million in assets (bringing the total to $1 billion)
> Removal of one shift of manufacturing
> Cut of 100,000 units of capacity
Models, Production Chopped
Chrysler President James Press said the Chrysler PT Cruiser ends production this summer. Production of the current Chrysler Aspen and Dodge Durango, which has been suspended for some weeks, will not be re-started.
Chrysler Vice Chairman Tom LaSorda said Chrysler has eliminated 12 production shifts and will drop another, though he wouldn't identify what one.
"We do have excess capacity we have to address," he said. A likely prospect for the latest shift reduction would be for the Dodge Ram full-size pickup: despite the launch of a heavily redesigned '09 model, Ram sales were off 35 percent in January.
Nardelli said the production cuts specified in the preliminary viability plan submitted today amount to an additional average annual reduction of some 180,000 units.
The company also said the plan contains a more conservative revision of its projection for U.S. sales for 2009: 10.1 million units. And Chrysler is forecasting an average of 10.8 million for the 2009-'12 timeframe.
Chrysler noted a key component of its viability plan is its product line, which it claims includes 24 new-vehicle launches in 48 months. That includes the launch of four major models in 2010: the new Chrysler 300, a revamped Jeep Grand Cherokee, a redesigned Dodge Charger and a new Dodge Durango that shifts from a truck-based platform to a unibody carlike structure.
Chrysler said 2010 also will be the year its new and more efficient Phoenix V6 becomes available, along with a two-mode hybrid version of the Dodge Ram. Chrysler ditched the two-mode hybrid versions of the Durango and Chrysler Aspen last fall, almost as soon as it introduced them.
As Chrysler has been saying, one of the concept electric vehicles the automaker has displayed at auto shows will also go into production in 2010, though it still did not name which one.
Guaranteeing Supplier Payments = More Taxpayer Investment
Saying "We recognize the stress that is on the system," Nardelli said the Chrysler restructuring plan also supports the "government guarantee" of receiveables from automakers.
This in effect adds potential billions to the pricetag of keeping Chrysler and General Motors Corp. afloat. Considerable liquidity would be necessary to support payments to suppliers for the parts and components the cash-strapped automakers require -- but perhaps cannout currently afford.
Bankruptcy an Unwanted Possibility
Nardelli and Chrysler executives also confirmed the company's viability plan submitted today did include studies of various bankruptcy scenarios, the most attractive of which is a Chapter 11-style debtor-in-possession (DIP) bankruptcy.
The company's analysis showed it might cost as much as $20 billion to $25 billion for such a process, with Nardelli stressing the huge cost of providing financing for dealer purchases of the vehicles they intend to sell.
"Who's going to support wholesale financing?" he asked, noting that it is highly unlikely any private investor would or could do so in the current economic climate -- leaving the cost to the government.
Likewise, there is an option of a Chapter 7 liquidation if the company could not count on the government to back a DIP bankruptcy arrangement. Nardelli said the company's projection for this would yield perhaps just a 25 percent recovery rate.
He said a DIP bankruptcy would cost every U.S. tax filer about $60 or $70, compared with a $1,200 bill for every tax filer if Chrysler must undergo a Chapter 7 liquidation.
PHOTOS:
1. Medium-duty Dodge Ram 3500 is restyled for 2010 but Ram sales sliding despite this and an all-new light-duty model for '09.
2. Chrysler 200C concept electric vehicle.
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