Billions in aid is better deal, Chrysler says

Bankruptcy would prove more costly than loaning automaker another $5B, execs say.

Alisa Priddle / The Detroit News

Giving Chrysler LLC billions more in federal aid is a better deal for taxpayers than letting the struggling automaker fall into bankruptcy, Chrysler executives said Tuesday as they submitted restructuring plans to the U.S. Treasury Department.

Chrysler is asking for $5 billion in new federal loans on March 31, on top of the $4 billion the Auburn Hills-based company already has received. Without the loans, Chrysler's cash will dip below its $2.5 billion operating minimum, which could force it to declare bankruptcy.

"Bankruptcy would cost a lot more money and cause tension and concern for dealers and customers, and it's not necessary," said Chrysler Chairman Robert Nardelli.

The automaker's plan also claims that its surest path to profitability lies in a deal that lets Chrysler exchange 35 percent of equity to form a strategic alliance with Italy's Fiat SpA.

Bankruptcy costs estimated

As required by the government, Chrysler provided bankruptcy scenarios, while emphasizing that such dire action isn't needed, nor is it recommended.

In Chapter 11, Chrysler estimated it would need $20 billion to $25 billion in debtor-in-possession financing to operate for two years while it restructures. An orderly liquidation would take two or three years, with some creditors recovering only about 25 percent of what they are owed, the government just 5 percent and remaining creditors nothing, said chief financial officer Ron Kolka.

But the $9 billion in total government cash -- $4 billion already received, $3 billion requested earlier and another $2 billion in Tuesday's plan -- would amount to $60 to $70 a taxpayer, Nardelli said, while the cost of liquidation would amount to $1,200 per taxpayer.

Chrysler's plan calls for cutting fixed costs by a further $700 million and eliminating 3,000 more jobs. The plan also would:

• Reduce one shift (100,000 units) at an undisclosed plant;

• Discontinue three models;

• Sell $300 million of additional nonearning assets.

The moves and money make Chrysler a sustainable, standalone company, Nardelli said.

But Chrysler would be global and more profitable with Fiat SpA as a partner, he said.

The automaker studied three partnerships during the past 18 months, first with General Motors Corp., then with Nissan Motor Co., before signing a formal nonbinding term sheet with Fiat, on the condition that Chrysler get additional financial aid.

The need for more money follows the deteriorating auto market and lack of credit, resulting in a 30 percent drop in Chrysler sales in 2008 and 55 percent decline in January. Chrysler's plan revises its U.S. sales forecast to 10.1 million units for this year and averages 10.8 million units through 2012.

The Chrysler plan calculates that would create $18 billion in lost revenue and a $3.6 billion decline in cash flow during the next four years.

Hence, the request for an additional $2 billion.

24 vehicle launches

"It's understandable. Things have gone downhill substantially," said analyst Aaron Bragman of IHS Global Insight in Troy.

Strategically, "if you're going to ask for money, now's the time to do it," Bragman said. "You might as well ask for as much as you can get."

The plan promises 24 vehicle launches in 48 months and pursuit of electric technology to develop fuel-efficient vehicles, including an electric-drive vehicle in 2010. New products include redesigns of the Jeep Grand Cherokee and a Dodge version as well as the Dodge Charger and Chrysler 300.

The Dodge Durango and Chrysler Aspen will not resume production, and the Chrysler PT Cruiser will be discontinued this summer. Those three nameplates join the already eliminated PT Cruiser convertible, Dodge Magnum, Chrysler Crossfire and Chrysler Pacifica.

Stephanie Brinley, analyst with AutoPacific in Troy, said she would have liked to see more nameplates cut, but said, "What they are envisioning with Fiat could be impacting it."

Concessions from the United Auto Workers, dealers, suppliers and second-lien lenders have been implemented or fundamentally agreed upon, the automaker said.

Chrysler said it expects the holders of its second-lien debt will agree to convert all debt to equity and expects to further reduce its outstanding debt by $5 billion.

As for union concessions, Chrysler says the signed term sheets for the Labor Modifications and VEBA modifications "fundamentally comply" with government requirements to bring them in line with the cost structure at transplants.

You can reach Alisa Priddle at (313) 222-2504 or apriddle@detnews.com.