A protracted bankruptcy could so impedeLLC product launches, likely costing “hundreds of millions of dollars in revenue,” the auto maker might never recover, according to a declaration filed with bankruptcy court.
Whether it’s tooling or testing, delays during the May-June period, are subject to a multiplier effect in terms of launch timing, warns Frank Ewasyshyn, executive vice president-manufacturing.
Citing the planned September 2010 production launch of the redesigned-for-’11 Dodge Charger sport sedan, Ewasyshyn says the required retooling was scheduled to begin this month at the auto maker’s assembly plant in Brampton, ON, Canada. “That conversion will now be delayed and will take four weeks,” he says.
“An interruption during this critical period will result in a much longer delay on the back end, perhaps delaying our planned launch of this model well into the first quarter of 2011.”
Such a delay “will cost significant revenue, perhaps totaling over $100 million and could jeopardize the success of the new company.”
The document contradicts information gleaned from multiple Ward’s sources immediately following Thursday’s bankruptcy filing. Sources said product-development was continuing despite the shutdown of’s manufacturing sites.
Ewasyshyn’s declaration says testing on the next-generation ’11 Jeep Grand Cherokee SUV “will cease completely” and will “obviously jeopardize our launch.”
The Grand Cherokee already was perilously close to missing its April 2010 production launch because of a dispute with a wiring-harness supplier.
The document is part of a package of legal briefs designed to compel the court to reach a swift decision regarding Chrysler’s restructuring.
Backed by the Obama Admin., which has promised $6 billion in emergency financing to keep Chrysler afloat, the auto maker has its sights set on a resolution within 60 days.
If and when the “New Chrysler” emerges from bankruptcy, it will be a much slimmer company, possibly with little more than about two-thirds of the manufacturing operations the auto maker has today.
In initial Chapter 11 filings with the U.S. Bankruptcy Court for the Southern District of New York, Chrysler LLC says it expects “eight manufacturing facilities and related machinery and equipment” to be among the major assets remaining with Chrysler after the more desirable portions of the auto maker have been spun off in the transaction involvingAuto Group, the U.S. and Canadian governments and the United Auto Workers union.
Among the eight facilities are the Sterling Heights, MI, operation that builds Sebring and Avenger midsize cars, the St. Louis North Ram pickup assembly plant and an engine plant in Kenosha, WI. The documents also say a stamping facility in Twinsburg, OH, will not survive.
The list also includes previously identified closures, including already mothballed plants in Newark, DE, (fullsize SUVs) and St. Louis (minivans), as well as the Viper assembly plant and an axle plant, both in Detroit.
The documents peg the value of those remaining assets – considered the bad part of the auto maker under the bankruptcy code’s Section 363 that will split Chrysler into a surviving new company and a separate portion to be liquidated – at $2.3 billion. No cash will remain with the old Chrysler, but it will be provided with $200 million in U.S. Treasury debtor-in-possession funding to “run a safe, prudent and orderly wind down of the estate for the benefit of Chrysler’s creditors,” the document says.
Chrysler currently has 32 manufacturing and assembly facilities, 23 of which are located in the U.S. and account for 69% of its vehicle output. So the plan to liquidate at least eight manufacturing operations would take New Chrysler’s roster down to 24. In addition to the manufacturing plants, Chrysler operates 24 parts depots, 20 of which are located in the U.S.
The plan to create a new company owned 20% by, 55% by the UAW’s Voluntary Employee Beneficiary Assn., 8% by the U.S. government and 2% by Canada (another 15% would be held aside for Fiat until it achieves certain goals on manufacturing and exporting), would result in the world’s sixth-largest auto maker, Chrysler says in its court filing.
The auto maker’s initial board of directors will have nine members. The U.S. Treasury will appoint three directors, including at least two who must be independent. Those directors will choose another independent director. The VEBA and Canadian government each will designate one director, and Fiat will have the right to name three, at least one who must be independent.
Chrysler officials and the U.S. government are hopeful the bankruptcy process can be sped up and the new company can emerge within 30 to 60 days.
A declaration by Tom LaSorda, vice chairman and president of Chrysler, offers insight into how the Fiat alliance came together. The seed was planted during a meeting in March 2008, between LaSorda and Fiat CEO Sergio Marchionne.
The two executives, who attended the same university in Canada, discussed the prospect of using Chrysler dealerships to sell vehicles from Fiat’s Alfa Romeo brand. They also discussed the possibility of producing the Fiat 500 minicar in North America for domestic sale.
“(A comparative) analysis revealed the potential for operational synergies of over $3.7 billion in cash flow (on a net present-value basis) over an 8-year period,” LaSorda discloses. “The study confirmed our qualitative judgment that the two companies were ideally matched.”
Chrysler and Fiat have identified four vehicle platforms and two engine and transmission families that form their alliance. If Chrysler were to develop these products on its own, the cost would range from $8 billion to $10 billion and development time could take five years.
LaSorda says the auto makers have agreed Chrysler will build a car based on the C-EVO in North America. The C-EVO shoulders the Alfa Romeo 147 small car.