US: Fiat alliance worth $8bn-10bn to Chrysler
Chrysler has had "very constructive discussions" with the US treasury and the presidential task force on the auto industry, chairman and CEO Bob Nardelli said in an email to employees. He also estimated the cash value of Fiat's contribution to be between $8bn and $10bn based on what it would cost Chrysler alone to develop and build the vehicles the Italian automaker would help with.
"Chrysler has emphasised in its discussions that it is a viable business on a stand-alone basis, and the future is further enhanced by the proposed global alliance with Fiat," Nardelli wrote, adding that Chrysler was "working determinedly" to finish negotiations with all parties to meet the 31 March deadline specified in the 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," the CEO said.
Nardelli said that, beginning in November 2007, Chrysler sensed the industry weakness before other competitors and took aggressive action to restructure. "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."
Chrysler is viable as a stand-alone company, even with a conservative forecast of US auto industry sales trends, Nardelli told employees. Under the stand-alone plan, Chrysler is on track for 24 product launches over the next 48 months, including a family of electric-drive ENVI vehicles.
If Chrysler were to use the more optimistic US sales assumption levels of a competitor, the company would generate an additional US$9bn of cash flow over six years, Nardelli said. Chrysler would be able to repay all of the taxpayer debt in five years, versus starting to pay the debt in 2012, as submitted in the stand-alone plan.
"Our plan also included very conservative assumptions on net pricing. If we used even very modest positive pricing assumptions…we would generate an additional $7bn of cash flow," Nardelli said. When added to the $9bn in cash flow from stronger sales, this would produce a total of $16bn of additional cash flow, enough to pay off debt in only four years, he said.
Chrysler plans to launch 24 products in the next 48 months, "which we're confident will help us preserve, as well as gain modest share," Nardelli said. Since 1992, Chrysler had lost only 2.4 percentage points of share in total, much less than its domestic competitors.
Chrysler's electric and electric range-extended vehicles will start to hit the market in 2010, and "will clearly give us a competitive advantage in meeting both consumer expectations and government regulations," Nardelli said.
Under the proposed Fiat alliance, Fiat would make available its entire product portfolio and powertrain technology. Fiat's worldwide distribution capabilities will also be used for Chrysler vehicles, and the two companies would achieve synergies in purchasing, engineering and other areas.
"We estimate the cash value of Fiat's contribution to be between $8bn and $10bn considering the cost to develop these vehicles, platforms and powertrains from scratch," Nardelli said.
"In addition, production of vehicles for Fiat in North America will allow Chrysler to increase its plant utilisation, helping to preserve and create in excess of 5,000 manufacturing jobs," he said.
Fiat's lineup produces the lowest CO2 emissions of any major European automaker and their product portfolio complements Chrysler - allowing Chrysler to introduce vehicles in the A, B and C segments to compete with US domestic competitors.
"From a distribution standpoint, they (Fiat) are where we aren't," Nardelli said. For example, Fiat is top selling brand in Brazil and South America, and the Italian automaker has agreed to distribute Chrysler vehicles worldwide.
Nardelli said Chrysler last month gained 1.4 points of retail market share in the United States, climbing to the second spot in retail sales among domestic automakers.
In Canada, it topped sales in February for the first time in its 84-year history.
Chrysler needs to be cost competitive in Canada and was seeking concessions for its Canadian operations in line with those requested by the US treasury for Chrysler overall, Nardelli said.
"We've aggressively restructured our business to reflect the economic realities, significantly improved the fuel efficiency and quality of our product line and created a conservative plan for a viable future that is further enhanced through the proposed global alliance with Fiat," he added.