As expected, Chrysler has submitted a detailed plan to Congress outlining how it will attemp to once again regain its status as a viable standalone automaker, and included in the plan's highlights are promises of improved fuel economy and fully electric vehicles. Chrysler says it will launch 24 new vehicles in the next 48 months, at least one of which will be an electric vehicle slated for a 2010 release. That's likely to take the form of the Dodge Circuit that's based on a chassis from Lotus and a battery pack from A123. After that, Chrysler promises to launch more unnamed EVs and extended-range EVs in the following years.
Chrysler also touts the strategic global alliance with Italy's Fiat as another way to get eco-friendly vehicles in the hands of the American population through "access to competitive fuel-efficient vehicle platforms [and] distribution capabilities in key growth markets." The long-rumored Phoenix engine family is also mentioned, which will reportedly improve fuel economy by 6-8% over Chrysler's current V6 engines.
The automaker further says that it supports the development of a uniform national fuel economy standard that reflects the input of all constituents. Sorry, California. To make all of this a reality, Chrysler says it needs an additional $2 billion on top of the $7B that it's already asked for, $4B of which it's already received. There's plenty more to the story, including production cuts, workforce reductions and a slew of concessions from the UAW and pretty much anyone else that has dealings with the automaker. We've pasted the official press release after the break and you can click here to read Autoblog's take on the situation and click here to download the 177-page document as a PDF file.
UPDATE: Chrysler says next Jeep Grand Cherokee will be 19% more fuel efficient and next 300 will feature a new V6 engine (presumably the from the Phoenix line) and a HEMI V8 with cylinder deactivation.
Chrysler LLC Viability Plan Submitted Today to The U.S. Treasury Department
* Chrysler LLC viability plan to be finalized by March 31 deadline
* Chrysler to complete its aggressive restructuring started in 2007 and 2008
* Chrysler viability plan is conservatively based and newly reflects an average annual 1.8 million-unit reduction in the Company's expected annual U.S. SAAR through 2012
* Chrysler's viability plan is built around a robust product plan, including 24 launches in 48 months and the introduction of electric vehicles to help meet current federal fuel economy standards
* The Company's submission demonstrates standalone viability which could be enhanced through a strategic alliance
* Dealers, suppliers and 2nd lien lenders' concessions have been implemented or fundamentally agreed upon
* A tentative agreement has been reached with the UAW that complies with the terms and conditions of The U.S. Treasury Department's loan agreement
* Due to unprecedented economic decline and a drop in current and forecasted U.S. SAAR, the Company adds $2 billion to its original $7 billion loan request
* Payback of Chrysler LLC's working capital loans with a premium would begin in 2012
Auburn Hills, Mich., Feb 17, 2009 - Chrysler LLC today submitted its viability plan to the U.S. Treasury Department, 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 significant 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.
"We believe that Chrysler LLC will be viable based on the updated assumptions contained in this submission, and that an orderly restructuring outside of bankruptcy, together with the completion of our standalone viability plan, enhanced by a strategic alliance with Fiat, is the best option for Chrysler employees, our unions, dealers, suppliers and customers. Today, our people are eager to re-establish Chrysler as an iconic American company and, in the process, repay the U.S. government and taxpayers for their faith in our future. We believe the requested working capital loan is the least-costly alternative and will help provide an important stimulus to the U.S. economy and deliver positive results for American taxpayers. This plan will ensure the continued provision of health care and pension benefits to our active employees and retirees, while continuing to protect hundreds of thousands of middle class, quality American jobs at Chrysler, our dealer network and our suppliers."
To help meet customer needs and increased federal fuel economy standards, Chrysler plans 24 vehicle launches in 48 months, and announced electric technology as a primary strategy for developing fuel-efficient, low emission vehicles, including an electric-drive vehicle in 2010. The viability plan shows compliance with current federal fuel economy requirements as set forth in the Energy Independence and Security Act of 2007. Going forward, Chrysler supports the development of a uniform national standard that reflects the input of all constituents.
To reduce costs, dealers, suppliers and 2nd lien lenders' concessions have been implemented or fundamentally agreed upon. A tentative agreement has been reached with the UAW that complies with the terms and conditions of The U.S. Treasury Department's loan agreement. Once realized this tentative agreement would provide Chrysler with a work force cost structure that is competitive with the transplant automotive manufacturers.
Since Chrysler LLC's original $7 billion submission, there has been an unprecedented decline in the automotive sector. The continued lack of available credit affects consumers and dealers, leading to reduced wholesale orders for Chrysler. Due to this continued lack of consumer credit, we are revising our Seasonally Adjusted Annual Rate (SAAR) forecast in the plan submitted today, which is conservatively based and reflects the reality of a declining automotive industry. We are now projecting a SAAR level of 10.1 million units for this year, (which is a 40-year low for our industry) and an average SAAR level of 10.8 million units for 2009-2012. This is a reduction from our original December submission of 7.2 million units, or an average 1.8 million units annually during the four years. For Chrysler, this represents a sales decline of approximately 720,000 units, (or an average 180,000 units per year) assuming a 10 percent market share. For Chrysler, this results in approximately $18 billion in lost revenue and a $3.6 billion decline in cash inflows during the four years.
Based on this, we will require incremental financial support to continue our orderly and effective restructuring and are therefore now seeking an incremental $2 billion in addition to the remaining $3 billion that was within the scope of our original December 2 plan submission.
Chrysler LLC Viability Plan Highlights
Chrysler has signed a non-binding agreement to pursue a strategic alliance with Fiat that represents significant strategic and financial benefits to stakeholders. The written and oral testimony Chrysler submitted to the U.S. House and Senate in 2008 stated the Company's intent to seek the benefits of global partnerships and alliances. The proposed Fiat Alliance would enhance Chrysler's viability plan and would provide the Company with access to competitive fuel-efficient vehicle platforms, distribution capabilities in key growth markets and substantial cost-saving opportunities.
Chrysler's product line is a key component of its Viability Plan. In 2010, the Company will launch four highly successful platforms: a new Jeep Grand Cherokee, a new Dodge Charger, a new Dodge Durango and a new Chrysler 300 (the most awarded car in automotive history since its launch in 2005). The Chrysler 300 launch will be followed by a new, bolder Dodge Charger and an all-new unibody Dodge Durango.
In 2008, Chrysler offered six vehicles with highway fuel economy of 28 miles per gallon or better. For 2009, 73 percent of Chrysler LLC's vehicles show improved fuel economy compared with the prior year's model. Fuel economy will continue to improve in 2010 with the introduction of the all-new Phoenix V-6 engine, which will provide fuel efficiency improvements of between 6 to 8 percent over the engines it replaces. A two-mode hybrid version of the Company's best-selling vehicle, the Dodge Ram is scheduled for 2010. 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.
The proposed Fiat alliance would further help the Company achieve these standards as Chrysler gains access to Fiat's smaller, fuel-efficient platforms and powertrain technologies. The alliance would enable Chrysler to reduce its capital expenditures while supporting the company's commitment to develop a portfolio of vehicles that support the country's energy security and environmental objectives.
Chrysler LLC has aggressively restructured operations to significantly improve cost competitiveness while improving quality and productivity. Through year end 2008, Chrysler has:
* Reduced fixed costs by $3.1 billion
* 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
The following additional restructuring actions are 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
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.
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.
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.
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. Chrysler supports the supplier associations' proposals, which would provide a government guarantee of OEM accounts payables.
2nd Lien Debt Holders Concessions
Chrysler anticipates that the holders of the 2nd Lien Debt 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 addition to strengthening the Company's balance sheet for the long term, this reduction will also provide immediate cash flow via interest savings of between $350 million and $400 million annually.
Letter to Stakeholders
Today, Chrysler LLC submitted its viability plan to U.S. Treasury Secretary Geithner in line with the government's deadline. It gives detailed information on how we will achieve and sustain long-term viability. We believe our submission meets the terms of the federal loan demonstrating our viability as a stand-alone company, as well as the potential benefits of a strategic alliance.
You'll recall that in December, Chrysler requested a $7 billion working capital loan to help bridge the current economic crisis brought on by the credit market freeze, energy price volatility and the collapse of consumer confidence. Last month, we were awarded $4 billion of this original request. These funds have played a critical role in our ability to support ongoing operations, make payments to our employees and suppliers and continue our investment in fuel-efficient vehicles and technologies to support our national objectives.
Since December, we have continued to see an unprecedented decline in the automotive sector. The continued lack of available credit affects consumers and dealers, leading to reduced wholesale orders for Chrysler. Due to this continued lack of consumer credit, we are revising our Seasonally Adjusted Annual Rate (SAAR) forecast in the plan submitted today, which is conservatively based and reflects the reality of a declining automotive industry. We are now projecting a SAAR level of 10.1 million units for this year, (which is a forty-year low for our industry) and an average SAAR level of 10.8 million units for 2009-2012. This is a reduction from our original December submission of 7.2 million units, or on average, 1.8 million units annually during the four years. For Chrysler, this represents a sales decline of approximately 720,000 units, (or an average 180,000 units per year) assuming a 10-percent market share. For Chrysler, this results in approximately $18 billion in lost revenue and a $3.6 billion decline in cash inflows during the four years.
Based on this, we will require incremental financial support to continue our orderly and effective restructuring. In addition to the original $7billion, $4 billion of which has been received, Chrysler is requesting an additional $2 billion (for a total of $9 billion) to support ongoing operations due to the continued deterioration in the economy, which has led to an unprecedented decline in the automotive sector since our Dec. 2 plan submission.
As we have indicated all along, shared sacrifice is necessary for Chrysler LLC's survival. We will need to continue making tough choices in the days ahead, and it will be absolutely critical that every stakeholder – creditor groups, shareholders, suppliers, dealers, the UAW and our own employees – make concessions.
To meet the terms of the federal loan, we were required to include a scenario in our plan for what would happen if Chrysler LLC failed. This is why today's submission includes a plan describing an orderly wind down of all operations through a court-supervised liquidation. I want to emphasize that this is not a course of action we are recommending. To be absolutely clear: we are confident we can succeed given the requested government loans, availability of consumer and dealer credit and constituent concessions. We are working hard to implement our plan by the March 31 deadline.
We have consistently and openly said that we are aggressively pursuing strategic partnerships and alliances to enhance our product portfolio, improve our cost structure and support our growth. Although our plan demonstrates we are viable as a stand-alone company, a potential global alliance with Fiat would enhance our long-term prospects by providing us access to additional small vehicles, fuel-efficient engines and technologies, a global distribution network and purchasing synergies.
The plan we submitted today includes a commitment to meet current CAFE requirements as well as details on how Chrysler LLC will achieve compliance through a combination of:
* More fuel-efficient powertrains such as the all-new Phoenix V-6 engine
* Gas-electric hybrid technology such as the two-mode hybrid system that will be available on Dodge Ram next year
* The electric-drive program developed by our ENVI group, with the first electric-drive vehicle coming in 2010 and other vehicles to follow
* A changing portfolio mix that will include more small, fuel-efficient vehicles
Going forward, we are prepared to work with all constituents to reach agreement on a federal-state fuel-economy solution resulting in a single national standard.
Our plan also emphasizes the importance of credit availability for automotive customers and dealers. When Chrysler Financial received a U.S. Treasury loan of $1.5 billion to support retail financing in mid-January, it was estimated that this amount would provide adequate financing capacity through March or April of this year. However, this is not a long-term solution. Because of the continued lack of credit market liquidity, Chrysler Financial submitted several follow-on proposals for a long-term solution to ensure its continued financing capacity. We support the resolution of these proposals, as adequate retail and wholesale financing capacity for Chrysler Financial is critical to our viability.
We are looking forward to working with the President's designee and the Presidential Task Force on Autos as they review our submission. As stated, our plans are based on a conservative estimate of economic trends, continued aggressive restructuring activities, a commitment to substantially improve fuel economy and a clear vision to reinvent our business model. (To view either a summary or the complete text of the viability plan submitted today, see Attached Files on the right).
We believe that Chrysler can be viable and play a vital role in supporting the recovery of the U.S. economy while preserving American jobs. We further believe that our continued orderly restructuring, together with the completion of our stand alone viability plan, enhanced by a strategic alliance with Fiat, is the best option for Chrysler LLC, our employees, our unions, dealers, suppliers, customers and the U.S. taxpayers. Our viability plan demonstrates that Chrysler LLC will repay the U.S. Government loans in full, with a premium beginning in 2012.
I continue to be impressed and grateful for the continued enthusiasm of our Chrysler team and all our stakeholders. I know we have the right mix of talent and dedication to succeed and return to profitability if we receive the assistance we need to weather this unprecedented industry downturn. Thank you in advance for your continued focus and support.
For a copy of the viability plan and the executive summary, please access the pdf files to the right under Attached Files.