Nardelli Testimony to Senate Committee

[Bill <Y1TopBanana73@xxxxxxxxx>]

Pulled from theFirehouse.biz - Chrysler Media Blog

The following is the written statement from Chrysler LLC Chairman and
Chief Executive Bob Nardelli to the U.S. Senate Committee on Banking,
Housing and Urban Affairs, delivered on Nov. 18, 2008.

Mr. Chairman, members of the Committee, I appreciate this opportunity
to address the current economic and financial crisis, the impact it is
having on the automotive industry, and the need for immediate action.

During the 15 months I've been part of Chrysler, and since we've
emerged as the first privately held American auto company in 50 years,
I've been proud to work with a team of dedicated men and women
determined to restore this 83-year old, iconic American brand to its
rightful place in the automotive industry.

We are asking for assistance for one reason: to address the
devastating automotive industry recession caused by our nations'
financial meltdown, and the current lack of consumer credit, which has
resulted in the critical lack of liquidity within our industry.

With credit markets frozen, our customers – average working Americans
– do not have access to competitive financing to purchase or lease
vehicles…our dealers do not have access to market competitive funding
to place wholesale orders for new vehicles…resulting in the
constriction of cash inflows to auto manufacturers. At the same time,
Chrysler has billions of dollars in cash payment obligations every
month to pay wages, to pay suppliers, to fund health care and
pensions, all in the range of $4 to $5 billion per month.

This crisis has already driven U.S. sales to a 25-year low. In 2008
alone, our volume domestically has dropped from 17 million units to 11
million – a 38 percent decline. That volume drop is more than the
total U.S. sales of Ford and Chrysler combined.

Therefore without immediate bridge financing support, Chrysler's
liquidity could fall below the level necessary to sustain operations
in the ordinary course. This would put at risk health care coverage
for retirees, which is part of Chrysler's nearly $20 billion total
health care obligation, $2 billion in annual pension payments to our
retirees and surviving spouses, approximately $7 billion in current
payables, $35 billion in future annual supplier business, and 56,600
direct Chrysler employees earning $6 billion in wages.

Independent research firms have quantified the fallout of a domestic
auto maker bankruptcy to the overall economy, and the impact is
devastating: 2.3 – 3 million in lost jobs, $275-$400 billion in lost
wages, and $100-$150 billion in lost government revenue.

But this is not a good option for Chrysler, and more importantly, for
the auto industry or the broader economy – for the following reasons:

1. We believe that retail sales would be impacted materially as a
result of declining consumer confidence, and we will be forced to
heavily discount existing inventory to move our product.

2. Given our common supplier base - at Chrysler, 96 of our top 100
suppliers are common to Ford and GM - the bankruptcy of any one
domestic automaker would place enormous pressure on the supply chain
and, consequently, that company's competitors.

3. Our factories would likely be idled for a significant period of
time while we renegotiate contracts with each of our thousands of
individual suppliers.

4. Restructuring and reorganization costs and expenses will be
materially higher in connection with a Chapter 11 process: supplier
and dealer support and marketing costs will increase, general economic
dislocation will follow and significant fees and expenses will be paid
to an army of bankruptcy professionals.

5. The overall amount and cost of financing the restructuring will be
significantly higher in a Chapter 11 process than the working capital
bridge we are requesting here today.

6. And finally, we cannot be confident that we will able to
successfully emerge from bankruptcy.

That's why as an industry we are requesting a $25 billion working
capital bridge to survive this liquidity crisis. However, both our
private equity owner and I believe that while the immediate bridge
financing is critical, the long-term solution to the industry's
problems and challenges requires industry consolidation and cost
rationalization to eliminate excess industry capacity and redundant
costs.

I would expect Congress to insist that the American taxpayer be
protected. We are willing to provide full financial transparency, and
welcome the government as a stakeholder – including as an equity
holder. We are fully prepared to comply with the current conditions
and policies already put in place as mandated by the government, under
the recently enacted Emergency Economic Stabilization Act.

Our private equity owner, Cerberus Capital Management, L.P., has made
it clear that it will forgo any benefit from the upside that would, in
part, be created from any government assistance that Chrysler LLC may
obtain. The principal of Cerberus Capital has stated that he will
enter into legally binding agreements requiring the contribution to
the government of the General Partner's future profits interest
related to Chrysler LLC which he might receive if any are ever earned.

Immediately on the separating from Daimler in August 2007, and being
new to the automotive industry, I recognized the need to question and
sometimes challenge the status quo, and seek significant opportunities
to improve performance throughout the business. We began an aggressive
restructuring and transformation of our business as an independent
American auto company.

During the first 60 days, we approved more than 400 line item design
changes, representing an investment of half a billion dollars in
improvements to our products' reliability, durability, fit and finish,
and consumer appeal. We offered our customers a lifetime powertrain
warranty to build their confidence. Due to a focused product quality
improvement effort during the past year, we've seen our warranty claim
rates drop by
29 percent and the improvement trend continues.

We made tough decisions to reduce operating costs and adjusted
production schedules immediately. We prioritized every product
investment with a strong emphasis on improving energy security and
environmental sustainability by introducing advanced powertrain
technologies, while at the same time we discontinued four vehicle
models. We also identified over $1 billion in non-earning assets to
sell and we're more than 75 percent toward achieving that goal.

Since 2007, Chrysler has reduced 1.2 million units of capacity, which
represents over 30 percent of our previous installed capacity, and
which resulted in the elimination 12 production shifts. Over the past
10 months alone, we've reduced our fixed costs by $2.2 billion, and
unfortunately, by the end of the year, we will have furloughed over
32,000 employees. That is the most gut-wrenching part of this job, to
see the effect on the lives of good men and women who lose their jobs
through no fault of their own, but because of the actions the Company
is forced to take in these difficult times.

We have increased our manufacturing productivity to equal Toyota as
America's most productive automaker in terms of hours of assembly per
vehicle, and our recently negotiated labor agreement was an important
step in making our cost structure more competitive with transplants by
2010.

To further enhance our product portfolio, support growth and improve
our cost structure, we continue to aggressively pursue strategic
alliances and partnerships with other companies. I believe more
restructuring and consolidation is required for the industry to be
viable in the long-run. We would welcome the opportunity to have an
open discussion with the new Administration and Congress on a
collaborative approach to restructuring that would ensure any
Government resources invested in the industry are used efficiently and
help achieve important national public policy objectives.

It is equally important that the lack of liquidity to provide loans
and leases to customers and financing to dealers is addressed
immediately. It is imperative that our affiliated financial companies
receive access to competitive liquidity and financing capacity. They
must in order to provide credit to our customers - average working
Americans - and support wholesale orders from our dealers.

Historically, over 90 percent of all new vehicles were purchased or
leased with financing assistance, and the lack of readily available
financing has simply frozen sales. A perfect example of this consumer
credit crisis is that 20 percent of our revenue disappeared overnight
when our finance company was unable to offer leases. These sales
literally vanished.

At Chrysler, 75 percent of our dealers rely on Chrysler Financial to
finance their business, and 50 percent of all customers finance their
vehicle purchases through the Chrysler Financial. Normally, these
loans and leases are securitized and sold in the secondary market to
generate fresh liquidity and financing capacity.

Today, there is virtually no secondary market, and therefore, no way
to raise capital. Money is not available for dealers to finance their
wholesale orders, invest in their facilities, and hire and train
employees. Competitive loans for the average working American – our
customers – are virtually nonexistent. This has directly and
dramatically depressed vehicle sales, putting at risk not only auto
manufacturers but also the widespread network of suppliers, vendors.
In Chrysler's case, 3,200 entrepreneurs…small businesses owners called
dealers, and the approximately 140,000 people they employ in every
state across the country. The National Automobile Dealers Association
estimates more than 700 of them will go out of business by year end.
If we don't secure a bridge loan, all 13,600 dealers are at risk.

There are 4.5 million people depending on this industry, and without
assistance, nearly three million of them could lose their jobs in the
next 12 months, according to a research memorandum published November
4, 2008, by the Center for Automotive Research. Failing to act now
will hurt many American families and undermine our country's economic
recovery, far outweighing the costs related to supporting an industry
that touches every district in every state of the nation.

The crippling of the industry would have severe and debilitating
ramifications for the industrial base of the United States, would
undermine our nation's ability to respond to military challenges and
would threaten our national security. Chrysler has long contributed to
our national defense. Our Jeep(R) was an indispensable part of our
nation's efforts in World War II and Korea.

Immediate financial assistance will serve the country and the economy
directly in two key ways. First, the lifeblood of the U.S. economy
will continue to flow. The industry will be able to continue to pay at
its current levels $22 billion in annual wages to our employees, $13
billion in annual pensions to our retirees and surviving spouses, and
meet our current commitment of $102 billion in healthcare costs to
employees. We will continue to pay $156 billion annually to our
suppliers and work to keep them strong by providing significant
additional financial relief for distressed suppliers fighting to stay
in business.

Second, America's auto companies are investing in innovation. Capital
investment in new technologies, improved operations, and future
product will be able to continue, including a combined $12 billion in
annual spending for research and development. As an industry, we are
moving full speed ahead to make the transition to advanced propulsion
vehicles that will help support national energy security and
environmental sustainability goals.

Chrysler plans to emerge from the current downturn as a lean, agile
company. We are, and will continue to be the quintessential American
car company. Currently, 73 percent of our sales are in the U.S., 61
percent of our vehicles are produced in the United States, 74 percent
of employees work in the U.S., 78 percent of our materials are
purchased in the U.S. and 62 percent of our dealers are based in the
U.S.

Today, Chrysler has a very strong pipeline, with a product renaissance
for 2010. In September we revealed our ENVI electric vehicle program,
and announced that we will begin producing one of these electric-drive
models for North American consumers in 2010. This underscores our
commitment to deliver environmentally friendly, fuel-efficient
vehicles to customers, and to meet this social responsibility faster
and more broadly than any other manufacturer.

Today we are asking you to help us bridge a chasm created by an
unprecedented financial meltdown. We are also asking you to consider
investing in a company that will deliver real results for the American
taxpayer.

I recognize that this is not an insignificant amount of money.
However, we believe this request is the least costly alternative
considering the options we face… with less impact on human capital,
and would provide stimulus, as opposed to further depress the economy.

Thank you very much.