Dear Employees,

As this eventful year draws to a close, I’d just like to take a moment and once again express my personal appreciation and thank you for your commitment and dedication to Chrysler LLC. Reflecting back on the year, I’m sure we can all agree that this one stands out for the extraordinary challenges we faced, as well as for the many accomplishments we can look back on.

We are grateful to the U.S taxpayers and the U.S. Treasury Department that they will provide a loan to Chrysler to help bridge the current financial crisis. And we appreciate that the Government of Canada and the Government of Ontario have offered to provide financial assistance as well to protect Canadian manufacturing. This support underscores their confidence in Chrysler’s plan for future viability and their recognition of the importance of the automotive industry to North America.

Despite the difficult economic conditions and financial crisis we faced this year, we continued to make significant progress in improving the fundamentals of our business, while strengthening our focus on customer first and quality period.

We continued to invest in and deliver great new products, launching the crossover Dodge Journey, the exciting Dodge Challenger and Challenger SRT8, the Liberty re-launch and the all-new Dodge Ram, which has received glowing accolades from the media, including a nomination for North American Truck of the Year. We also celebrated the 25th anniversary of our invention of the minivan, which still wears the crown as the world’s best-seller.

Chrysler’s ongoing commitment to safety is evident in government ratings.

For the 2009 model year, more than 88 percent of Chrysler vehicles achieved NHTSA’s highest possible rating - five stars for frontal crash tests.

Eighty-six percent of Chrysler vehicles achieved the Government’s highest rating for side-impact protection.

We continue to boost the fuel economy of our vehicles. For the 2009 model year, 73 percent of our products offer improved mileage compared with 2008 models, with six vehicles offering 27 mpg or better highway fuel economy:

the Caliber, Patriot, Compass, Sebring, Sebring Convertible and Avenger.

And in September, we shocked the industry with the unveiling of our ENVI family of all-electric and range-extended electric vehicles, a major step on the path to national energy security and reduced environmental impact.

We will put our first electric-drive vehicle into production for North America by 2010 with three additional models by 2013.

Our long-range product plan is robust, realistic and green. The plan features 24 major launches from 2009 through 2012. Many of you had the opportunity last week to attend the future products open house in the Design Dome and saw the all-new versions of key models such as the Chrysler 300, Dodge Durango, Dodge Charger, Jeep Grand Cherokee, our electric vehicle prototypes and the sketches of other products like a new fuel-efficient small car. You also had a chance to see the tremendous strides we are making in the quality of our interiors, which will have a major impact on pleasing our customers, as well as the latest generation of our uconnect family of consumer technologies for in-vehicle information, communications and entertainment. Our future plans also include a hybrid Ram truck.

We made steady progress in productivity and quality this year. According to the Harbour Report, we have increased our manufacturing productivity by 32 percent over the past seven years and now equal Toyota as the most productive automaker in North America as measured by hours of assembly per vehicle. 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.

Since the economic downturn began in 2007, we have faced this harsh reality and consistently acted quickly to reduce operating costs, adjust production schedules and prioritize product investment to mitigate the effects of this historic recession and financial crisis. We’ve taken out 1.2 million units of capacity, eliminated 12 production shifts and closed two manufacturing plants. We’ve reduced our fixed costs by $2.4 billion. The difficult restructuring, combined with the recent retirements and voluntary terminations, has reduced Chrysler employment by 32,000 since 2007. We’ve all said good-bye to many colleagues and friends who have served Chrysler so well over the years.

However, these and other difficult but necessary actions have positioned Chrysler to begin 2009 as a leaner, more efficient and focused organization characterized by fewer layers of management with broader spans of control.

We have a realistic and achievable plan to turn Chrysler around and return the company to profitability. With the government bridge loan forthcoming, we’ll have the financial backing to implement that plan. In the weeks ahead we will continue to work with all of our stakeholders to achieve the shared sacrifice that we need in order to achieve long-term viability.

Throughout the government loan request process, I’ve received many letters, calls and e-mails of support from our extended Chrysler family, our customers and many Americans who support the automotive industry. To show our appreciation, we will be placing an advertisement in several national newspapers today, thanking America for investing in Chrysler. A link to a copy of the advertisement is attached.

In closing, I wish you and your loved ones the happiest of holiday seasons.

Enjoy your family time together, wherever your travels may take you. I look forward to rejoining you in January to take on 2009 with a resolve to return our business to profitability and viability.

God Bless you all. Best wishes and warmest regards,

Bob

The senate didn’t pass the bailout legislation yesterday citing unwillingness of the UAW to take pay cuts to bring them inline with the Japanese automakers pay.  Nardelli sent a letter to his employees, here is what it said:

Dear Employees:

We are all obviously disappointed in what transpired in the Senate last night. While a majority of Senate members supported the bridge loan request (52 in total, including 10 Republicans), the required 60 votes necessary were not achieved. While concessions from all key constituents were a condition of the loan, attempts to negotiate specific industry cost concessions during Senate consideration failed, leading to the breakdown.

Despite this setback, we will continue to make our case in Washington that an immediate, short-term bridge loan is critical for Chrysler to survive the current financial crisis and is just as important to the health of the overall American economy. We also will continue our discussions with the White House and with the Treasury Department, and will continue to seek funding options for Chrysler and Chrysler Financial through existing programs including the Troubled Assets Relief Program (TARP).

To that end, we were pleased to see the commitment from the White House in the following statement released today:

“It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation. The approach in that legislation provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds go only to firms whose stakeholders were prepared to make the difficult decisions to become viable, competitive firms in the future.

Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program — to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.

While the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable.”

I also want you to know that we are in on-going discussions with the presidential transition team, and key members of the incoming administration are aware of the importance of addressing the short-term and long-term viability of our industry and our company.

All of us can help with these efforts. First and foremost, we must eliminate every unnecessary cost in every aspect of our business. While a bridge loan is critical to manage through this financial crisis, we must continue to manage the factors under our control. Continued cost reduction is important to ensure the future viability of the company. At the same time, let’s not forget that we have a solid plan for recovery and viability, great products in our pipeline and the most dedicated people in the business. Let’s all maintain our commitment to each other to work toward a great future for our Company.

I also would encourage every U.S. employee to take a minute today and call the White House comment line at (202) 456-1111, or send a note to the White House at comments@whitehouse.gov. Voice your support for immediate action to assist Chrysler and the millions of Americans who depend on the automotive industry. Urgent action is needed to prevent the failure of this important industry that provides $293 billion in annual economic benefit to this country. Please tell your friends and family to do the same. Together, we will make our voices heard.

Thank you for your continued support.

Bob

Source: Allpar

With lawmakers drawing closer to a loan deal to save Chrysler and General Motors, Chrysler CEO Bob Nardelli told workers this morning that he is “very encouraged by developments over the weekend.”

“While the situation in Washington remains dynamic, I am very encouraged by the developments over the weekend and the growing interest shown by Congress and the administration to provide needed financial assistance to the three Detroit automakers,” he said in a memo to employees obtained by the Free Press.

He cautioned that “this process is far from over.”

Chrysler has asked for $7 billion by the end of the month and has warned that without immediate help its liquidity could fall below the level necessary to sustain the company through the first three months of 2009.

Source: Freep

Chrysler submitted their plan today to congress that outlines how it plans to become more healthy.  Chrysler has a good chance of going under without some kind of federal aid like it received in the early 80s.  In order to remain viable it is looking for $7 billion in loans, less than Ford and much less than GM.  The cost cutting measures Chrysler has already done are proving to be a big help right now, but the current recession coupled with the frozen credit markets are something that Chrysler did not have a plan for.  Here are the key points:

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® 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.

Cerberus Capital Management LP, wading into the politics of a U.S. auto-industry bailout, would give up any profit on a future sale of Chrysler LLC should the company receive federal financial aid.

Chrysler also expects the U.S. government to take a stake in the company in any rescue, CEO Bob Nardelli said yesterday. Federal backing for a merger between Chrysler and General Motors Corp. was discussed before GM ended talks last week, people familiar with the matter said.

The no-profit pledge may help ease opposition in Congress to helping the industry, because Cerberus is a buyout firm. Cerberus founder Stephen Feinberg “has basically gone on record saying he would forfeit” profit from a sale under a bailout, Nardelli said at a conference in Palm Desert, California.

“This is a sign they need the money and are willing to do anything to get it,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. Taxpayers won’t want to let “a private-equity fund reap the profit,” he said.

Chrysler, which isn’t required to report financial results, has indicated it lost at least $1.08 billion in the first half. Cerberus acquired 80.1 percent of the automaker from Daimler AG in 2007 for a $7.4 billion investment, about a fifth of what the Germany company paid for Chrysler nine years earlier.

Source: Bloomberg

Chrysler talks about it’s electric vehicles some more.  They estimate that by 2020 at least half of the market will be made up of vehicles that utilize batteries to get better mileage in one way or another.  It could be simply shutting the engine off at stops all the way up to fully battery powered vehicles.

“You’re going to see the electrification of all vehicles” in the years ahead, said Frank Klegon, Chrysler’s executive vice president - product development.

The current Dodge EV is Chrysler’s first attempt to build an all electric vehicle (and is likely going to be their first EV in production).  It’s built on a Lotus Europa platform, and would outperform the Lotus on the track.  It goes 0-60 in less than 5 seconds with a top speed of 120 mph.

Though he’s tight lipped about which one will come first, CEO Bob Nardelli promises that by mid decade Chrysler will have a fleet of electric vehicles.

Bob Nardelli sat down with Charlie Rose recently and talked about a number of topics about Chrysler and the auto industry as a whole.