AUBURN HILLS, MI â€“ Critics concernedGroup LLC will run out of money before it has a chance to execute its recovery plan can relax.
will finish a dismal 2009 with $5 billion-$7 billion in cash, and it has no intention of going back to the U.S. and Canadian governments, hat in hand, for more bailout money to fund its ambitious 5-year, $23 billion new-product program, top executives say at a backgrounder here.
Chief Financial Officer Richard Palmer says the auto maker will reach breakeven on an operating basis next year and on a net basis in 2011. It will pay back all government loans by the end of 2014.
Operating profits should reach $4.7 billion to $5.2 billion at the end of the 5-year plan in 2014, Palmer says. Chrysler is targeting a net profit of $3.0 billion in 2014. Breakeven on a net basis will be achieved on a volume of 2 million vehicles, he says.
The forecast is a conservative one, Palmer adds, based on a U.S. market of 14.5 million new-vehicle sales in 2014. Chrysler says the consensus among analysts pegs industry sales at 16.8 million units.
The CFO says Chrysler has stress-tested its plan, and even if the downturn is more prolonged than expected, thereâ€™s enough room and flexibility built into the budget to continue limping along.
The $23 billion in spending will finance a complete revamping of Chryslerâ€™s vehicle lineup, launch of several new powertrains and retooling of factories, as the auto maker looks to grow its overall volume by about 1 million units to roughly 2.7 million vehicles worldwide in 2014.
The bulk of the spending will come in 2012, when a bulge in the product plan requires Chrysler to dole out $5.7 billion.
CEO Sergio Marchionne acknowledges the investment plan is aggressive, and there may be unknowns that crop up and force a few detours.
â€śThereâ€™s still a level of concern on what weâ€™ll be able to achieve in 2010, the first year of the new organization,â€ť he says, noting Chrysler wonâ€™t have much new product to offer until the yearâ€™s second half.
â€śBut we wouldnâ€™t be investing $23 billion if our expectation wasnâ€™t that we can restore these brands,â€ť he adds. â€śThereâ€™s a huge amount of cash being consumed by this business. But if we canâ€™t (gain volume and market share), we wonâ€™t spend the money.â€ť
Palmer says Chrysler will boost its advertising outlays significantly in the coming years as it attempts to re-launch the Chrysler, Dodge, Jeep and new Ram truck brands into the market. Spending will rise from an estimated $100 per unit this year to $170 in 2010, peaking at $210 in 2011 before winding back down to $170 in 2014.
What wonâ€™t be increasing are incentive costs, which help dealers at the expense of OE profitability, Marchionne says.
â€śChasing share in this market is going to be a disaster,â€ť he says. â€śWe will take production out (if we need to). Discounts are triggered by oversupply. Chrysler has no intention of replicating the past.â€ť
The auto maker is targeting a daysâ€™ supply below 60 on each vehicle line, Marchionne says.
Chrysler says it will be a board decision, but it is doubtful an initial public offering will occur before 2011. Marchionne says he does not have a timetable forAutomobiles SpA to increase its 20% stake to the 35% holding targeted in its deal with the U.S. government and other Chrysler stakeholders.
will take an additional 5% if it executes its plan to build the 500 model in North America, he says.
â€śThe (rest) will happen when it happens,â€ť Marchionne says. â€śI wonâ€™t feel any better when Fiat owns 35% of Chrysler. Weâ€™ll still be working just as hard.â€ť
Chrysler, which will use Fiat platforms for 56% of its new model lineup (by volume) and tap the Italian auto maker for small engines, engine technology and modern dual-clutch transmissions, hasnâ€™t paid a single dollar to Fiat so far, the CEO says.
Project collaboration is taking place only where it is beneficial to both companies, Marchionne says, pointing out each has a separate board of directors to ensure neither auto maker is disadvantaged in the relationship.