Chrysler Group Recovery and Transformation Plan Seeks Return to Profitability, Redesigns Business Model

Chrysler Group Recovery and Transformation Plan Seeks Return to Profitability, Redesigns Business Model

February 15, 2007

 
    - Financial Impact - Return to profitability by 2008
  
    - Employee Impact - 13,000 employee reduction; Newark
Assembly Plant to 
      be idled, shifts eliminated and total capacity
reduced by 400,000 units
  
    - Redesigned business model for long-term
competitiveness, including 
      greater emphasis on fuel-efficient products, global
growth and 
      partnerships
  
    - euro 2.3 billion ($3 billion) powertrain investment
leads to more fuel-
      efficient line-up
  
    - DaimlerChrysler is looking into further strategic
options with partners 

    AUBURN HILLS, Mich., Feb. 15 /Xinhua-PRNewswire / --
DaimlerChrysler AG's Chrysler Group today announced a
three-year Recovery and Transformation Plan that seeks a
return to profitability by 2008 while also taking steps to
change its business model for the long run. The plan will
result in an employee reduction of 13,000 people from 2007
to 2009. 

    Chrysler Group President and CEO Tom LaSorda outlined
the plan at the DaimlerChrysler AG Annual Press Conference,
held in Auburn Hills, Michigan. 

    Dr. Dieter Zetsche, Chairman of the Board of Management
of DaimlerChrysler: "The Chrysler Team worked out a
comprehensive Recovery and Transformation Plan using all
resources within DaimlerChrysler. In addition to that and
in order to optimize and accelerate the presented plan, we
are looking into further strategic options with partners
beyond the business cooperation partners mentioned. In this
regard, we do not exclude any option in order to find the
best solution for both the Chrysler Group and
DaimlerChrysler." 

    Overall, the Recovery and Transformation Plan is aimed
at a return to profitability with a primary focus on costs.
It is structured to over-achieve in order to offset
potential unforeseen market headwinds, resulting in a
target of euro 3.5 billion ($4.5 billion) of financial
improvements - or a return on sales of 2.5 percent - by
2009.

    "There are two integrated parts to the plan,"
LaSorda said. "First, the Chrysler Group needs to
solidify its position in the North American marketplace. In
addition, the key to our long-term success will be our
ability to transform the organization into a different
company to achieve and sustain long-term
profitability." 

    The program will be supported by a euro 2.3 billion ($3
billion) investment in new engines, transmissions and axles,
which will set the table for a product offensive of more
than 20 all-new and 13 refreshed vehicles from 2007 to
2009. 

    RECOVERY

    The Recovery plan is aimed at a return to profitability
through a combination of revenue programs and by sharply
focusing on costs. 

    The key measures include: 

    Revenue Management 

     - Continue the product offensive with eight new and
five refreshed 
       products in 2007. Key products include the new
Chrysler Town & Country 
       and Dodge Grand Caravan minivans, mid-size Dodge
Avenger sedan, 
       Chrysler Sebring convertible and a Jeep(R) Liberty
that completes the 
       revamping and expansion of the Jeep family. 
     - Improve the retail-to-fleet mix, build momentum with
new offerings in 
       global markets and improve the effectiveness of
marketing and 
       incentive spending. 
     - Reduce and optimize the dealer network to improve
dealer 
       profitability. 

    Material and Fixed Costs 

     - Reduce material costs by up to euro 1.15 billion
($1.5 billion) by
       2009. 
     - Explore the sale of support operations, including
transportation 
       services. 

    Capacity & Efficiency 

     - Reduce total production capacity by 400,000 units
per year. 
     - In 2007, eliminate a shift at Newark (Delaware)
Assembly Plant and the 
       Warren (Michigan) Truck Plant. In 2008, eliminate a
shift at St. Louis 
       (Missouri) South Assembly Plant. 
     - Idle Newark Assembly Plant in 2009. 
     - Idle the Cleveland (Ohio) Parts Distribution Center
in December 2007. 
     - Adjust powertrain, stamping and component operations
to reflect  
       reduced capacity. 

    Employee Reduction 

     - Overall, Chrysler Group will reduce the number of
employees by 13,000, 
       or approximately 16 percent. 
     - Hourly employment will be reduced by 11,000 over
three years, with 
       9,000 in the U.S. and 2,000 in Canada (4,700 in the
U.S. and 1,100 in 
       Canada in 2007 alone). 
     - Of the U.S. hourly total, 4,000 employees will be
impacted by assembly 
       plant actions; 1,000 by reduced capacity in
powertrain, stamping and 
       other component operations; 1,000 by other actions
including the 
       potential sale of support functions; and 3,000
through technology, 
       efficiency and productivity. 
     - Salaried employment will be reduced by 2,000 over
the next two years, 
       with 1,000 each in 2007 and 2008. 
     - Special retirement programs and other termination
and attrition 
       programs will be announced separately. 

    LaSorda said these actions complement significant other
restructuring measures taken since 2001. Previous to this
announcement, the company closed, idled or sold 16 plants
(five assembly, 11 component) and reduced its workforce by
one-third. 

    The financial impact of these Recovery measures will be
seen beginning in 2007 with a restructuring charge of up to
euro 1 billion ($1.3 billion), with the net cash impact for
the year of about euro 800 million ($1 billion). The impact
of the balance will be in the following two years. 

    In 2007, the Chrysler Group expects to further reduce
dealer inventories to align with market demand, which will
result in a reduction in operating profit of approximately
euro 230 million ($300 million). 

    TRANSFORMATION

    Key parts of the Transformation will be a greater
global footprint and a shift in the product mix to smaller,
more fuel-efficient vehicles. 

    Currently, North America represents some 90 percent of
the Chrysler Group's business, and its product line-up has
historically been heavily weighted toward minivans, trucks
and sport utility vehicles. "Those two factors were
advantages for Chrysler Group once upon a time," said
LaSorda, "but the rules of the global marketplace have
changed. High fuel prices and other dramatic shifts in the
market have driven a shift in consumer preferences to
smaller, more fuel-efficient vehicles. We must make some
strategic adjustments to build off our historic strengths,
but not rely on them so much so that we are put at a
competitive disadvantage" he said. 

    "That will require a redesigned business model,
with three primary areas of strategic focus", LaSorda
said. "First, the Chrysler Group will add a more
robust customer and brand focus while continuing to stress
product leadership. In addition, we must achieve better
global balance and rely more heavily on leveraging
partnerships to manage costs while finding growth
opportunities." 

    Specifically LaSorda pointed to the following
initiatives: 

    Customer and Brand Focus 

     - Continue the product offensive through 2009, with
more than 20 all-new 
       vehicles and 13 refreshed vehicles. 
     - Build on its existing product strengths through new
entries in the 
       minivan, pick-up truck and select rear-drive
full-size vehicles. At 
       the same time, the company will learn to do more
with less with a plan 
       to reduce product platforms from the current 12 to
seven by the year 
       2012. 
     - Expand into new commercial vehicle segments,
including entering the 
       Class 4 & 5 truck segments for the first time. 
     - Continue the shift to a car/truck mix that is less
reliant on trucks. 
     - Invest in powertrain with euro 2.3 billion ($3
billion) dedicated to
       new engines, transmissions and axles, in order to
move toward a 
       portfolio that is more fuel efficient. That will
include a common axle 
       program for all vehicles, plus work on a new
transmission technology. 
       Last week, the company signed a non-binding
memorandum of 
       understanding with Getrag (a German-based supplier)
to develop this 
       more fuel efficient "dual clutch"
transmission technology. 
     - As part of that powertrain offensive, the company
has under 
       development a new V-6 engine platform (dubbed
"Phoenix"), which is 
       targeted to reduce the number of six-cylinder engine
families from 
       four to one. 
     - In addition, Chrysler Group will introduce its first
two-mode full 
       hybrid with the 2008 Dodge Durango, and is also
evaluating a mild 
       hybrid for future applications. 
     - Finally, it will expand its line-up of diesel
engines, including 
       several BLUETEC-labeled vehicles, a designation
emblematic of the 
       cleanest diesel in its class. 

    Increase Global Presence 

     - Avoid nameplate redundancies in North America and
develop and 
       introduce vehicle programs aimed at global markets.

     - Use third parties where possible to access regional
products and 
       markets where it makes economic sense. 
     - Balance supplier purchasing globally by targeting
euro 3.8 billion ($5 
       billion) of additional purchasing to low-cost
sources to complement  
       the company's global growth. 

    Partnerships 

     - Better use of alliances and partnerships around the
world, such as the 
       Chrysler Group does currently with: 
        - In manufacturing, an agreement with Volkswagen to
build minivans in 
          North America for VW's dealers. 
        - In retail, such as in Mexico where it sells a
Hyundai-produced 
          vehicle as the Dodge Atos, and soon will sell a
small cargo van 
          produced in Taiwan 
        - In import opportunities, such as the
recently-announced agreement 
          in principle with Chery Automobile Company of
China (contingent 
          upon approvals from the DaimlerChrysler
Supervisory Board and the 
          Chinese government) produce a small car for sale
in North America 
          and Europe. 
        - And in focused partnerships, such as the GEMA
World Engine project 
          with Hyundai and Mitsubishi in Dundee, Michigan,
or the 
          DaimlerChrysler consortium with General Motors
and BMW to develop 
          hybrids. 

    Further information from DaimlerChrysler is available
on the Internet at http://www.media.daimlerchrysler.com . 


    For more information, please contact: 

    Chrysler Group
     Jason Vines
     Tel:   [phone]
     Email: [e-mail]

     Mike Aberlich
     Tel:   [phone]
     Email: [e-mail]
     
     David Elshoff
     Tel:   [phone]
     Email: [e-mail] 


SOURCE  Chrysler Group