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Chrysler’s February 2009 Recovery Plan

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Chrysler's February 2009 Recovery Plan

A first look at the 167-page public Chrysler statement shows three plans being considered: "stand alone," Fiat partnership, and "orderly wind down." The plan declared that "Chrysler can be viable on a standalone basis in the short/mid term" assuming that current debt is reduced, concessions are obtained from all constituents, and the government and DOE put $11 billion more into the pot - and that the annual domestic sales rate stays at or above 10 million units (though in the same scenario they point out that anything over 9.1 million may allow for survival.)

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The strategic partnership with Fiat is seen as creating more jobs in the first five years, but would provide more fuel efficient vehicles more quickly and would make Chrysler "more viable." Of note, Chrysler listed three partnerships studied over the last 18 months. They quoted GM as the best option for the U.S. auto industry from a financial and operational perspective, but said that GM "took it off the table."

For Nissan, there was a single interesting phrase: "Investigated alliance and not able to pursue."

The orderly wind down would take place if Chrysler could not receive $5 billion more from the U.S. government and/or could not negotiate targeted concessions and/or could not substantially reduce its liabilities. In this case, Chrysler would seek debtor-in-possession financing of $24 billion over two years; without this, they estimated first-lien lenders would get only one quarter of their funds back, the government 5%, and everyone else would be left with nothing. Chrysler estimated 300,000 lost jobs (including at suppliers), 3,300 failed dealers, and perhaps 2-3 million jobs lost due to a resulting collapse in the industry, resulting in a $150 billion tax revenue loss over next three years.

The current negotiations have been largely fruitful, with the exceptions being the UAW with regard to the VEBA alone, and to creditors, particularly the government's additional loans.

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More material pointed out that Chrysler had been cutting its fixed costs for years, along with its dealer year-end inventory and workforce, while increasing manufacturing efficiencies. They pointed out that unemployment rates are currently the highest since 1992, with nearly 600,000 jobs lost in January alone, and provided numerous examples of fiscal problems in the greater economy.



Numerous tables were set up in a misleading way, with no zero points, so that the drops looked steeper than appropriate. The plan also assumed Chrysler would get an unrealistic $6 billion of the $8 billion in DOE funds.

The standalone plan projected $9 billion in cash at year end starting in 2009, rising slowly to $11.4 billion in 2014 as the loans were paid off. Under this scenario, though, net income would not start breaking even until 2013 - excluding $600 million in 2010 (before loan payoff started in 2012). This plan assumes around 50% of Chrysler sales would be retail in the U.S., with around 17% fleet in the U.S.; international sales would slowly increase.

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Benefits of the Fiat alliance were pointed out - the two companies have almost no shared turf, geographically or in market niches. The two have very different technologies, as well, with Fiat's aimed at small, highly efficient engines (gasoline, diesel, and tetrafuel).

Chrysler's plan also noted that durability targets have increased by 50% on future vehicles, with the company now targeting a Consumer Reports rating of 40% better than the industry average for reliability. The report gave credit for Chrysler's small number of recalls to a rigorous review and followup process, and having top executives personally call customers to discuss quality.

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Chrysler's road map noted two new battery operated ENVI vehicles appearing in 2010 and 2011; three more showing up starting in 2012 through 2014 with 40-70 mpg; and three new hybrids, in 2010 (Ram), 2013 (unknown), and the Ram again in 2013.

For the first time, the new 2010 Chrysler 300 and 2010 Jeep Grand Cherokee were shown inside and out. The full product plan was shown through 2015, with profiles of the Charger, 300C, Durango, and Grand Cherokee.

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