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Output reduction and job cuts to help blunt decline in sales
By Mike Ramsey and Jeff Green
Bloomberg News
Published on Friday, May 16, 2008
Chrysler LLC Chief Executive Officer Robert Nardelli said this year's loss will be ''significantly lower'' than 2007's $1.6 billion deficit as the third-largest U.S. automaker pares output and cuts 12,000 jobs.
Those steps are producing savings to help blunt an 18 percent sales decline through April, Nardelli said in a Bloomberg Television interview.
A narrower loss would take pressure off owner Cerberus Capital Management LP, which is also trying to win support for a $3.5 billion bailout of the mortgage arm of its GMAC LLC unit. Cerberus owns 80.1 percent of Chrysler and bought 51 percent of GMAC from General Motors Corp. in 2006.
''We're generating cash very favorably, and adding to that stockpile going forward,'' Nardelli said. This year's loss will be ''significantly lower,'' he added, without giving a figure.
Chrysler began working to reduce expenses before this year's sales slide. In November, the automaker canceled four models, cut jobs and pared production in anticipation of the decline. Losses totaled at least $2.2 billion in the last two years.
Nardelli, 59, said the company is trying to raise cash by selling ''nonworking assets'' including land and unused offices and factories, and he said Chrysler won't consider bankruptcy. Since December, Chrysler has offered for sale properties it values at a minimum of $42 million.
Chrysler will continue to adapt to a weak U.S. auto market, said Co-President Tom LaSorda, 53.
He said the company is ''right-sized'' for industrywide sales of about 15.3 million cars and light trucks this year, which would mark a drop from last year's 16.1 million vehicles. Industrywide sales tumbled 7.7 percent this year through April.
Fewer vehicles unsold
Chrysler's unsold vehicles at the end of April totaled 422,353, or 13 percent fewer than a year earlier. The reduction comes as Chrysler shifts to making vehicles as they're ordered by dealers, abandoning its earlier practice of working toward a preset volume target. While that step lowers revenue, Chrysler also spends less on materials and sales incentives.
U.S. market share for Chrysler fell to 12.5 percent through April from 14 percent a year earlier, in part because of the trimmed-down lineup and reduced sales to rental-car companies. The cut in rental-car business will damp monthly totals throughout 2008, Chrysler has said.
Fitch Ratings lowered Chrysler's corporate issuer default rating to ''B'' from ''B+'' last week, citing the slides in sales and market share. ''Liquidity is expected to remain adequate over the near term to fund restructuring costs and operating losses,'' Fitch said.
In January, Nardelli said Chrysler ended 2007 with $1 billion more cash than anticipated.
Cerberus appointed Nardelli, the former CEO of Home Depot Inc., to run Chrysler after taking over the 82-year-old automaker in August, demoting then-CEO LaSorda to president.
In September, Cerberus hired Jim Press, 61, a Toyota Motor Corp. director and the Japanese automaker's highest-ranking American executive, as co-president with LaSorda.
Press has said the automaker needs about half of the sport-utility vehicle models it currently sells. Chrysler said in November it would drop the Pacifica SUV, PT Cruiser convertible, Crossfire car and Dodge Magnum wagon in November, and Press said in a May 12 interview that the company won't build a Chrysler-brand version of the Dodge Journey SUV in 2009.
Instead, Chrysler will use the savings to help pay for designing a compact car to be manufactured by Nissan, Press said.
The move reflects a push toward more fuel-efficient vehicles and Chrysler's goal of eliminating overlap between its brands. Abandoning the SUV will also leave Chrysler with fewer new or revamped products for 2009, putting the automaker at risk for further declines in market share, analysts said.
Analysts have contended that Cerberus might seek to exit its investment in the automaker by selling off the Jeep brand, which is Chrysler's best-known global brand.
Jeep sale not in picture
Nardelli said a Jeep sale isn't being considered. The brand is composed of six SUVs. Chrysler plans to discontinue the Jeep Commander SUV next year, people familiar with the decision said.
Press said May sales are ''right on schedule'' as traffic to dealerships increases, in part because of a new sales promotion that offers to subsidize gasoline purchases for three years so the price is capped at $2.99 a gallon. He wouldn't give a sales target for this month. Chrysler sold 199,393 vehicles in May 2007.
Chrysler LLC Chief Executive Officer Robert Nardelli said this year's loss will be ''significantly lower'' than 2007's $1.6 billion deficit as the third-largest U.S. automaker pares output and cuts 12,000 jobs.
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