UPDATE 7-Chrysler offers revival plan but skeptics remain

Published: 04 Nov 2009 17:42:28 PST

* Fiat CEO Marchionne presents 5-year Chrysler plan

* CEO says Chrysler not losing money

* Plan central to U.S.-taxpayer recovery from Chrysler

* Sees $2.9 bln in cumulative cost savings from purchasing

* Forecasts break-even on a net profit basis by 2011 (Recasts, adds CEO comments, analyst comment, other details)

DETROIT, Nov 4 - Chrysler's new boss offered an upbeat outlook on the ailing automaker on Wednesday, saying the company is making an operating profit and building cash thanks to the massive cost savings it has enjoyed thanks to its brief trip through bankruptcy a few months ago.

"Some of you have been (presuming) that we are losing money ... this is not true," Sergio Marchionne, chief executive of Fiat SpA <FIA.N>, which controls Chrysler, said as he unveiled a five-year plan to turn the company around.

"Most of you underestimated the substantial reduction in fixed costs that was carried out by the old Chrysler. The new Chrysler is being incredibly parsimonious."

But the presentation did little to allay skeptics who say Chrysler needs lots of new vehicles now to steer its faltering operations toward recovery. In October, the most recent month for which there is industry data, Chrysler's U.S. sales plunged 30 percent even as General Motors Co [GM.UL] reported its first monthly sales increase in nearly two years.

Rebecca Lindland, an analyst at IHS Global Insight, said Chrysler appeared serious about taking on some of the operational problems that had dogged the company during its decline.

But she said the day-long presentations had been short of details on upcoming products. "It's still about product if you want people to be excited about your company," she told Reuters.

INTERTWINED

Marchionne said the plan would streamline Chrysler's vehicle lineup by focusing its Dodge brand on cars and minivans and by turning Ram into a trucks-only line.

By 2014, nearly half of Chrysler's products will roll on Fiat-derived powertrains or platforms and shared purchasing between the two companies will save Chrysler some $2.9 billion from 2010 through 2014.

Marchionne said Fiat and Chrysler's businesses were now "inextricably intertwined" and said the turnaround plan -- presented during a far-ranging and detailed briefing that extended into the evening -- would succeed.

"It's comprehensive, serious and ambitious," Marchionne said, "and it's a plan for which this management team ultimately wants to be held accountable."

In the interim, Marchionne and his lieutenants said Chrysler would quickly improve its finances, breaking even on a net profit basis by 2011.

Chrysler plans to build its Jeep brand to sell 800,000 units globally by 2014, up from 487,000 last year.

The company also plans to invest more than $120 million in its retail network in 2010 as it works to make dealerships more inviting to consumers.

To improve the fuel-efficiency of a truck-heavy lineup, Chrysler said it would roll out a Fiat engine and fuel-saving engine technology as soon as 2010. By 2014, it said it would have replaced almost three-quarters of Chrysler's current engine lineup.

Michael Manley, the executive in charge of Jeep and Chrysler's international sales, said the company expects international sales volume, which accounted for only 11 percent of its sales outside North America in 2008, to rise to 18 percent of sales by 2014.

"It's an ambitious plan," said Erich Merkle, an auto industry analyst with Autoconomy.com.

"On the other hand, they don't have an alternative."

'NO BUSINESS AS USUAL'

Chrysler Group Chairman Bob Kidder, who was appointed to represent the taxpayer interest at Chrysler, said the automaker would pay off U.S. government loans "with all deliberate speed."

"There is no business as usual at Chrysler. There is incredible commitment to, and energy for, change," Kidder said. "We intend to make this a public company, a great public company, again."

Marchionne's financial objectives for Chrysler are just as ambitious. Richard Palmer, the company's chief finance officer, said the automaker would break even on an operating profit basis by 2010 and break even on a net profit basis by 2011.

Palmer said the carmaker's revenue would grow about 20 percent per year over the next five years and reach $67.5 billion by 2014, when Chrysler expects to report an operating profit in the range of $4.7 billion to $5.2 billion.

He said the company would pay back all monies borrowed from the U.S. government under the TARP program in 2014, but with $2 billion in debt to the U.S. Department of Energy.

Palmer said Chrysler's capex spend will average $4.5 billion during the five-year turnaround.

Chrysler plans to re-engineer some of its vehicles to work on Fiat-designed platforms, and aims to replace the Jeep-brand Patriot, Compass and Liberty with new vehicles based on a Fiat platform. It also expects to roll out a new small Jeep-brand sport utility vehicle on another Fiat platform. The moves are a way to lower costs.

Many top U.S. auto executives have been watching closely to see Fiat's plans for Chrysler. Several executives interviewed at the Reuters Autos Summit in Detroit this week said they had been impressed by Marchionne's actions so far.

"Chrysler has the most difficult challenge on every count and it's going to take all of Sergio's wonderful talents to meet that challenge," Mike Jackson, CEO of No. 1 U.S. auto dealer AutoNation Inc, said ahead of the presentation.

Chrysler has had past brushes with financial crisis -- including a federal bailout 30 years ago -- but the crushing decline in U.S. auto sales this year pushed it to the brink of outright collapse.

Steve Rattner, the former investment banker who oversaw the U.S. autos task force, said recently that he had put the odds of success for a Chrysler turnaround at just over 50 percent and that other figures in the administration had argued that the automaker should be allowed to fail.

Chrysler's larger rival, General Motors Co, went through its own government-sponsored bankruptcy, but GM has been far more open about its plans.