Wednesday, September 10, 2008

Chrysler's Press: US automakers can be competitive


By TOM KRISHER 09.10.08, 2:58 PM ETChrysler LLC Vice Chairman Jim Press said Wednesday that U.S. automakers have reached the start of a new era in which they can be competitive with foreign brands.

Press told the Automotive Press Association in Detroit that a new union contract that shifts retiree health care costs to a trust and allows lower wages for new hires has helped Chrysler and other automakers become leaner.

He said Chrysler has cut 1 million units of production in the past year to match the U.S. market, which has shrunk amid economic worries and higher gas prices. Chrysler sales are off 24 percent so far this year, while the overall market is down 11 percent.

Press said it still will take time for Chrysler to fix its entire business model, but the company is making progress. It is spending $3 billion developing plants and new vehicles each year and plans seven new vehicles in 2010, including the previously announced new Jeep Grand Cherokee and a subcompact car jointly produced with Nissan Motor Co. (nasdaq: NSANY - news - people )

Press said the credit crunch is Chrysler's biggest issue, not $4 per gallon gasoline. The automaker's financial unit last month was only able to renew $24 billion of its $30 billion in lines of credit, shortly after Chrysler Financial said it was getting out of the auto leasing business as it saw big drops in the values of trucks and SUVs at the end of their leases.

But Press predicted things will get better in 2010.

"Somewhere in 2010, in that area, there should be some improvement in the market," he said.

Press said the company is working on a new midsize car that is completely innovative and will make Chrysler competitive in the mainstream market. Its current offerings, the Chrysler Sebring and Dodge Avenger, have not sold well.

Press hinted that Chrysler may dump one of its near-twin minivans to cut parallel costs. He said he envisions one of them morphing into a model that attracts a different market such as younger buyers, while the other model continues to focus on its traditional customer base.

He also said the company met internal performance targets for the first six months of the year. Even though July was difficult, he said the company is within "spitting distance" of reaching those goals for the year.

Chrysler has said it's performing ahead of its own expectations, with $11.7 billion in cash on hand at the end of June and earnings of $1.1 billion in the first half of the year before interest, taxes, depreciation and amortization. That means it is making money from its core business of making and selling cars, but before financial obligations like paying taxes, servicing debt, deducting the value of aging assets and recording expenses that are taken over time.

As a privately held company, Chrysler isn't required to release financial information, and it didn't provide its net income or other details.

Private-equity firm Cerberus Capital Partners LP bought 80.1 percent of Chrysler from Germany's Daimler in August 2007 in a $7.4 billion transaction, ending a stormy nine-year partnership. Daimler AG, which owns the remaining 19.9 percent, indicated through its own financial results last month that Chrysler lost an estimated $510 million in the first quarter.

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