Mar 18, 2009 -
Sharpened Focus?
Fox Business obtained a copy of a letter from Chrysler CEO Robert Nardelli to employees and contractors about the restructuring plans. Give the letter a read and let us know what you think. Does it make sense? Will it work out the way he thinks?
Dear Employees,
As part of our continuing effort to keep you informed on the status of our viability plan we submitted to the U.S. Treasury, I want to give you the following update. We have had a series of very constructive discussions with the U.S. Treasury and the Presidential Task Force on the Auto Industry since our Feb. 17 viability plan submission. In recent meetings, we have been impressed and encouraged by the task force’s thoughtful approach and the level of detail in their questions. During the dialogue, and in the additional data we have supplied in response to their requests, we have continued to emphasize that Chrysler is a viable business on a stand-alone basis and our future is further enhanced through the proposed global alliance with Fiat.
In our filing (which is available to the public) we showed clearly that with the addition of the $5 billion loan we requested, Chrysler would be able to continue paying the wages of our employees, the invoices of our suppliers, as well as investing in our future product plan. We would not have been able to achieve this without your hard work, dedication and commitment along with that of other key constituents. Fortunately, our early read of the industry started as you will recall, in November 2007. We took some very aggressive actions before others to restructure our business. As a result, much of the cash expense required for inventory reduction and restructuring is now behind us, and our dealers have achieved the lowest inventory levels among the domestic auto manufacturers.
I assure you, we are continuing to work collectively and determinedly with all constituents to successfully conclude negotiations by March 31, the deadline specified in our U.S. Treasury loan agreement. Throughout the process of seeking government assistance, our plan for viability has been based on a very conservative view of the auto industry, taking into account the current financial crisis and economic environment, which we believe will be with us through the end of 2009.
We were asked by the task force whether Chrysler is viable without a global alliance partner. Our answer is absolutely yes (and I am sure you will agree with me), even with a conservative forecast of U.S. auto industry sales trends. The table below shows our projections for seasonally adjusted annual rate (SAAR) of sales; earnings before interest, taxes, depreciation and amortization (EBITDA) and net debt, all of which was submitted to the government in our Feb. 17 viability plan.
Chrysler Stand Alone 2009 2010 2011 2012 2013 2014
SAAR Level (millions) 10.1 10.6 11.1 11.6 12.1 12.6
EBITDA (billions) 2.9 5.0 3.9 3.9 4.4 4.7
Net Debt (billions) 7.9 7.8 9.2 8.6 7.2 5.6
(All based on conservative assumptions)
Based upon the EBITDA projections and an improved net debt position, the company is well positioned for long-term viability. Our stand-alone plan keeps us on track for 24 product launches over the next 48 months, including a family of electric-drive ENVI vehicles that will help us meet CAFE requirements and support our country’s energy security and environmental sustainability goals. We will continue to work to improve our dealers’ profitability through our Genesis program and begin repayment of our U.S. Treasury loans in 2012.
What’s more, if we were to use the more optimistic SAAR assumption level of a competitor in the table below (which is public knowledge as a result of its submission), we would generate an additional $9 billion of cash flow over six years. We would be able to repay 100 percent of our taxpayer debt in five years, versus starting to pay our debt in 2012, as submitted in our stand-alone plan.
Debt paid in full
Chrysler Stand Alone With Competitive SAAR Levels 2009 2010 2011 2012 2013 2014
SAAR Level (millions) 10.5 12.5 14.3 16.0 16.4 16.8
EBITDA (billions) 3.1 5.8 5.2 5.7 6.1 6.4
Net Debt (billions) 7.6 6.1 5.7 2.9 -0.2 -3.4
Our plan also included very conservative assumptions on net pricing. If we used even very modest positive pricing assumptions, as noted in the table below, we would generate an additional $7 billion of cash flow. When added to the $9 billion in cash flow from stronger sales, this would produce a total of $16 billion in additional cash flow, enough to pay off our debt in only four years.
Debt paid in full
Chrysler Stand Alone With Competitive SAAR Levels 2009 2010 2011 2012 2013 2014
SAAR Level (millions) 10.5 12.5 14.3 16.0 16.4 16.8
EBITDA (billions) 3.4 6.5 6.5 7.3 7.7 8.5
Net Debt (billions) 7.3 5.1 3.4 -1.0 -5.8 -11.1
Another important assumption of our viability plan is market share. We believe our forecast (that we will maintain a U.S. market share of approximately 10 percent) is appropriate, given our company’s history. Since 1992, we have lost only 2.4 percentage points of share in total, while each of our two domestic competitors has experienced a much larger share loss. In fact, each of our domestic counterparts recorded a 45 percent reduction in share during the same period. Our assumption of steady share is conservative, recognizing that we will launch 24 products in the next 48 months, which we’re confident will help us preserve, as well as gain modest share. It’s also worth noting that more than 70 percent of our 2009 products offer increased fuel economy compared with prior year models and that we continue to work on our full line of ENVI products. Our electric and range-extended electric vehicles that start to hit the market in 2010 will clearly give us a competitive advantage in meeting both consumer expectations and government regulations.
