Friday, May 2, 2008

Chrysler is meeting goals, top execs say


"We are exactly on plan or better relative to our return to profitability," Chrysler CEO Bob Nardelli says of his company's turnaround.

Profit to take more time


Chrysler LLC's top executives said Thursday they're meeting their internal goals and counseled patience as they re-create the Auburn Hills automaker as a smaller company. They offered no expectation for earning a profit this year and expressed concerns about the economy into 2009.

"There seems to be an expectation or desire that the company will take some elixir or there's some new coat of paint that you can put on the building or something like that, that instantaneously tomorrow it's a different company," said Jim Press, Chrysler president and vice chairman.

"Lesser companies would have buckled," Chief Executive Officer Bob Nardelli said of the struggles Chrysler has faced in the past year.

During a meeting with Free Press reporters and editors, Press, Nardelli and Tom LaSorda, also a president and vice chairman, said that:

• 5,600 to 6,000 of the 10,000 hourly workers the company wants to shed this year were granted buyouts or retirement packages in the first quarter.

• The surprise tentative labor agreement between the Canadian Auto Workers and Ford Motor Co. reached this week appears to fall short of what Chrysler thinks is competitive. CAW President Buzz Hargrove has said the deal would serve as the pattern for new agreements with Chrysler and General Motors Corp.

• The streamlining of Chrysler's product lineup, which is driving dealer consolidation efforts, will not happen in one fell swoop. Think five to seven years.

• A summer holiday from the federal gas tax is unhealthy and inconsistent with new fuel-economy regulations.

Press preached patience, noting that the three leaders are working to stabilize the company and prepare it for growth.

"These are global structural issues where we're competing with companies in other countries, in other worlds, in other environments," Press said. "We can and will be as good or better than they are, but it takes time to develop these products. It takes time to develop the manufacturing. It takes time for the technology. It takes time to shape the dealership organization."

An eventful year

Nearly a year ago, private-equity firm Cerberus Capital Management was ushered in as troubled Chrysler's savior. It gave assurances that the change would provide the automaker's future with strength and stability.

Since August, when the deal was closed, Chrysler has undergone sweeping changes with the addition of new leadership, including Nardelli and Press. The company made more job cuts, as many as 12,000 on top of 13,000 already planned; eliminated four products, and added a new partner. Nissan Motor Co. will build small cars for Chrysler to sell in North America, and Chrysler will make pickups for Nissan.

"As long as you have money, it's OK" to have patience, said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "They're doing essentially what I think they have to do, is to try to leverage their assets and be more sharply focused than typically some people have to be in this industry. But they really are faced with a different set of circumstances than some of the others."

Van Conway, a turnaround expert from the Birmingham-based consulting firm Conway MacKenzie & Dunleavy, agreed it will take Chrysler's new team a while to turn around the business.

"It's a huge company, and if you want to turn around a huge company given what they're facing, it's not going to happen in a quarter or two," he said. "I don't think you can go in there and say, 'Let's fix it.' "

By the financial, sales numbers

Daimler AG, which kept a 19.9% stake in Chrysler, announced Tuesday that the value of its share in Chrysler had dropped nearly two-thirds since the August deal.

Also, Daimler's financial filings with the U.S. Securities and Exchange Commission seem to indicate that Chrysler lost $6.8 billion, primarily in the final five months of 2007, under European accounting standards used by Daimler.

Chrysler argues that using European rather than U.S. accounting standards to gauge how it is doing paints a distorted view of its business. Experts say it provides a relevant look into Chrysler's finances.

Although Chrysler has provided little guidance on its finances, a view more in line with its accounting practices might be to include the $1.6 billion Nardelli has said Chrysler lost in its operations last year plus the $1.3 billion the February turnaround plan was believed to cost.

Chrysler's sales this year are down 18% compared with last year at this time.

Major parts of Chrysler's turnaround plan involve cutting back on workers and streamlining the number of vehicles it makes.

As many as 6,000 UAW members were granted buyout or retirement packages to leave the company in the first three months of this year, LaSorda said. He estimated that those people should be finished departing in the next month or so.

Chrysler is attempting to cut its hourly workforce by as many as 10,000 this year. "We have never missed a reduction plan target, so I would not expect that we would miss this one, either," LaSorda said.

In March, UAW Vice President General Holiefield said he didn't think Chrysler would get 10,000 takers because of the troubled economy.

Lineup reduction to take 5-7 years

Press gave greater insight into how Chrysler's planned vehicle lineup reduction will play out. "You'll see some of it in five years and seven years. ... It's evolving as the new products come out," he said.

Press has told Bloomberg that Chrysler could cut its lineup of 11 SUVs in half and has indicated changes to the automaker's two minivans.

"We don't have -- don't need to have -- the resources allocated to produce two or three vehicles that really cater to the same customer base," Press said Thursday.

"We're one company. So we can expand our footprint, our coverage of our products by adding product in the B-segment and ... over time as we go through the model change cycles, we'll be morphing some products out and bringing some products in, and in general we'll have fewer products in the portfolio.

"By doing that, the three brands will have more distinctiveness and they won't be competing with each other."

Last month, Chrysler and Nissan announced a partnership to share some specific vehicle platforms, allowing Chrysler to sell a Nissan-made small car -- the so-called B-segment -- in North America and elsewhere without the expense of coming up with its own platform.

In return, Chrysler will make Nissan a pickup based on the Dodge Ram for the Japanese company to sell in the United States.

"We're excited about that. We're very excited about the continuation of discussions with Nissan," Nardelli said. "I hope ... the industry would see that as a tremendous vote of confidence in Chrysler. ... It speaks volumes, I think, about their confidence in our ability to produce that vehicle and the longevity of Chrysler."

A bounce in their step

On Wednesday, Chrysler's top 300 executives met to talk about how the company is doing, Nardelli said.

"They went out with a bounce in their step. We shared with them where we are and where we want to go," Nardelli said. "I would hope you see that as a solid message again for Chrysler, for Detroit, for the auto industry, for America."

Nardelli again noted that Chrysler has met or exceeded every metric provided to investors in August, including ending 2007 with $1 billion more cash on hand than expected.

As the first privately held major U.S. automaker in more than 50 years, Chrysler is not required to provide details about its finances. What little is known comes from Daimler's reporting and occasional statement -- or misstatement -- from Chrysler executives.

"There is a lot of discussion about the health of Chrysler LLC and the ability to sustain operations, etc. We're not where we want to be over the long haul. But we are exactly on plan or better relative to our return to profitability," Nardelli said.

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