BACK SEAT DRIVING - MAY 2009

For hot and tender news wires on the car culture, see LA Car's Hot Wires Judge Approves Chrysler-Fiat Deal Iacocca Losing Pension, Car in Chrysler Bankruptcy Mazda6: The Road Not Taken Answers to Frequently Asked Questions About Chrysler's Bankruptcy It's Day One at the New Chrysler

Chrysler Vice Chairman & President Jim Press shows off the Fiat 500

NAKANO: BACK SEAT DRIVING New Company Formed with Fiat Auburn Hills, Mich., May 31, 2009 - Chrysler LLC today announced that the U.S. Bankruptcy Court, Southern District of New York, has approved its request to sell substantially all of its operations to Chrysler Group LLC, the new company formed in alliance with Fiat SpA. "With this approval, the new Chrysler Group is created and can prepare to launch as a vibrant new company formed with Fiat" said Robert L. Nardelli, Chairman and Chief Executive Officer of Chrysler LLC. "Through the hard work and foresight of many Chrysler stakeholders, Chrysler Group will soon begin operations with significant strategic advantages, such as a wage and benefit structure for active and retired employees that is competitive with those of transplant manufacturers; a reduction of debt and interest expense; the disposition of idle assets; a rationalized and more efficient dealer network; and sound agreements with our suppliers. While this has been an extremely difficult chapter in Chrysler's history for all involved, the new Company and its customers, employees and suppliers can now begin on a fresh page." The alliance with Fiat provides Chrysler Group with access to products that complement the Company's current portfolio, technology cooperation and stronger global distribution. Work with Fiat is already well underway to develop the next generation of fuel-efficient vehicles. Chrysler officials hope that the approved deal will enable the new company to become a strong competitor. Many of Chrysler's stakeholders have worked together to launch Chrysler Group, which will move quickly to realize the benefits of the alliance. "We are very grateful to loyal Chrysler customers who have supported us throughout this process and assure them Chrysler Group is well prepared to produce and support quality vehicles under the Jeep®, Dodge and Chrysler brands as well as parts under the Mopar® brand" continued Mr. Nardelli. "We also recognize the sacrifices, unstinting loyalty and enduring belief in Chrysler of many stakeholders, including Cerberus and Daimler, the UAW and CAW leadership, employees, dealers and suppliers who made critical contributions to the viability of Chrysler Group, Chrysler Financial and their efforts with GMAC to provide financing, and the energy and commitment of the U.S. Treasury, the President's Auto Task Force, Members of Congress and representatives at the state and community level and Canadian Federal and Ontario Provincial governments in helping to move Chrysler Group forward. Without the extraordinary efforts of all these constituents, the alliance and the creation of a new Chrysler would not have been possible." Chrysler's Mexican, Canadian and other international operations will also be acquired by Chrysler Group. As the Company announced previously on April 30, Mr. Nardelli, who had been leading Chrysler since August 2007, will resign from Chrysler LLC on completion of the transaction. He will return to Cerberus Capital Management LP as an advisor. More information about Chrysler's restructuring is available at www.ChryslerRestructuring.com.

 

BACK SEAT DRIVING IACOCCA LOSING PENSION, CAR IN CHRYSLER BANKRUPTCY Lee Iacocca, the car executive credited with saving Chrysler from bankruptcy in the 1980s, is to lose a big chunk of his pension and a guaranteed life-long company car due to the U.S. automaker's bankruptcy filing two decades later, according to Emily Chasan of Reuters. "Chrysler CEO Robert Nardelli told a U.S. bankruptcy court on Thursday that Iacocca's pension would be among the obligations Chrysler will no longer have to pay if it gets bankruptcy court approval to sell itself to a "New Chrysler" to be owned by its union, the U.S. and Canadian governments and Fiat SpA (FIA.MI)," said Chasan. Iacocca, the storied former chairman and CEO who revived Chrysler in the 1980s and appeared in car commercials, has participated in a supplemental executive retirement plan that was comprised of non-IRS qualified pension funds and is subject to bankruptcy. "The claim is unsecured, and typically would be paid after secured creditors in a bankruptcy, but even secured creditors are not expected to get full recovery in a Chrysler bankruptcy that will see hundreds of dealerships shuttered and plants closed," according to Chasan. Chrysler has also written to former executives saying that as a result of its April 30 bankruptcy filing it will stop a program that furnished company cars to former executives and directors. Iacocca, famous for the phrase "If you can find a better car, buy it," and other senior executives who were part of the program are being asked to return their cars to a Chrysler marshalling center or arrange to pay for them, according to the document. Chrysler said it regretted the action "in light of the many contributions these individuals have made to Chrysler over the years" and that the "New Chrysler" does not expect to reinstate the car program. (Additional reporting by Tom Hals and David Bailey, Editing by Ian Geoghegan.)

 

The new Mazda6

NAKANO: BACK SEAT DRIVING THE ROAD NOT TAKEN Year in and year out, the family sedan market remains the most hotly contested in the land of milk and honey. For those that view cars as nothing more than an appliance, the radar screen doesn't veer much beyond a Camry or an Accord. But the list of very good offerings in this class is quite large, and the consumer that takes the time to consider the roads less traveled will likely be rewarded with a more interesting product. Take, for instance, the newest Mazda6 Touring sedan that I recently spent time in. By virtually any qualitative measure, it is the equal of the Camry and Accord. What sets the Mazda6 apart, however, is its bodywork. To this mind's eyes, it is the handsomest family sedan currently being offered in this country. The careful attention to aesthetic integrity is most prominently seen in the Mazda6's exterior sheet metal. However, the interior surfaces also received plenty of attention. Our sample had a tasteful cloth and leather combination that was attractive, despite being far from the most expensive interior option offered.

The new Mazda6 is not small by any means, but our 2.5-liter DOHC 16-valve VVT-equipped car manages to bring in an EPA rating of 21 miles per gallon in the city and 30 on the highway. For a car of this size, it's no small feat - particularly since we're talking about the real-world adjusted ratings that the EPA now uses for mileage. If you want to strive for even better mileage, you can work the manual mode on the automatic transmission and be rewarded with a sportier drive to boot. Government safety ratings? It's five stars across the board - frontal crash driver, frontal crash passenger, side crash front seat, side crash rear seat, and rollover. That's according to the National Highway Traffic Safety Administration. That is pretty remarkable. So, the next time your friend or relative asks you for advice on a new car, tell 'em to take off their blinders, re-calibrate the radar screen, and see what's really out there. Yeah, Robert Frost may tell you it may not make all that much of a difference in the end. On the other hand, we already have an ocean of appliances on the highways and byways of Southern California. Consider it your contribution to the community beautification project. - Roy Nakano   

NAKANO: BACK SEAT DRIVING ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE CHRYSLER BANKRUPTCY AutoPacific's Highlights and Lowlights of Chrysler's Bankruptcy The US automobile industry has just entered into unchartered waters with the recent filing of Chapter 11 bankruptcy by Chrysler LLC. Automotive and marketing consulting firm AutoPacific's industry analysis offices provide the following answers the frequently asked questions raised by the new chapter in Chrysler's business life: What will the ownership of Chrysler look like in its post-bankruptcy phase?

• 55 percent will be owned by VEBA/UAW
• 20 percent by Fiat (Fiat cannot become majority owner before government loans repaid)
• Fiat can, however, increase its stake in three stages, at increments of 5 percent each
• The stages: Provide 40mpg platform to Chrysler, built in the U.S.; provide Chrysler access to Fiat global distribution network; provide a fuel-efficient engine family, built in U.S. for use in Chrysler vehicles ¤ 10% US and Canadian governments
• Resulting New Chrysler (not to be confused with August 2007's New Chrysler) leaner, reduced structural and fixed costs and debt allowing for profitability at post-recession lower market volumes
• Risk: Fiat small cars developed for European cost structures (e.g. $20,000 small cars versus U.S. $13,000 to $15,000 tolerance). A 500 in the States will be low volume.

Is Quick Bankruptcy Possible?

• Chrysler filed Chapter 11, using Section 363 to sell majority of assets to a new Chrysler. Bankruptcy lawyers insist it is impossible to guarantee 30-to-60-day bankruptcy, and highly improbable it will be achieved
• Everyone with vested stake has right to be informed of and react to proceedings. Can and will take time
• Likely that some dealers and suppliers will contest resolutions or bring suit, lengthening and complicating process
• Specific and well-structured agreements with Fiat, UAW/CAW, and majority of lenders will smooth the process, assuming a bankruptcy judge does not vacate the agreements. Is possible, if not likely.
• Bankruptcy was logical outcome; only legal way to rework or dump dealer and supplier contracts, versus buying them out (which Chrysler clearly does not have funds to accomplish)
• Government support of warranties may allay fears, but concerns about closing dealerships and difficulty in getting service post-bankruptcy may impact consumer choices; no clear support for vehicles purchased before April 2009

Expected Management Changes

• New eight-member director board as the company emerges from bankruptcy
• New board will select new CEO. Maybe Fiat's Sergio Marchionne
• New company will be overseen by board of nine directors
• Fiat chooses three directors
• U.S. government chooses four initial "independent" directors
• VEBA chooses one independent director
• Canadian government chooses one independent director
• Governments and VEBA have no governance or management role
• CEO and Chairman Bob Nardelli resigns post bankruptcy
• Vice Chairman and President Tom LaSorda retires before bankruptcy over
• Jim Press's Chrysler future uncertain

Plant Shutdowns

• Chrysler plants idled May 4, 2009, until bankruptcy is complete, or the company runs low on inventory. New union terms apply (most get 80% pay, combination Chrysler and state benefits)
• Some suppliers stopped delivering parts immediately after filing. Sebring/Avenger Sterling Heights and Warren Truck plants idled April 30.
• Despite strides made in 2008-09 to reduce inventory, company has enough for 30 to 60 days. Should bankruptcy go beyond 60 days or they run low, production will be reassessed
• Still working: headquarters operations; salaried, nonunion plant staff; engineering, development, and design for new models and pilot programs (e.g. Grand Cherokee, ENVI, adaptation of Fiat platforms/engines)
• Idling plants, even as a defensive measure, is counter to President's characterization of Chrysler operating "business as usual" during bankruptcy.

What Might Alliance Really Mean for Chrysler Future?

• No product details confirmed, though Chrysler and Fiat have been evaluating options for months
• Fiat 40 mpg vehicle for U.S. production may be a platform to replace Dodge Caliber/Jeep Patriot
• U.S.-built Fiat fuel-efficient engine not specified, may use Fiat's MultiAir variable valve timing technology under license. Fiat will not sell intellectual property rights to the system
• Project Genesis continues; target for Chrysler-Jeep-Dodge brands under one roof, eliminate product overlap
• Products at risk: Nitro, Sebring sedan, Town & Country, Compass
• Chrysler currently does not have an entry-level (sub-$15,000) product, and cannot afford to develop alone
• Entry product may not be adapted 500. Fiat 500 sells for €12,500 (about $16,550) in Europe. 500 to play niche, Image Compact role. Uncertain which badge might be on the nose
• Chrysler's overall range can use the help of Fiat's experience in higher-fuel efficiency products in meeting upcoming CAFÉ standards and expected increased demand for small cars
• With dissolution of Daimler relationship, Chrysler needs Fiat's global distribution network to continue even low-volume international sales
• Fiat's CEO has strong knowledge of North American market and success in reworking Fiat, plus outside-Chrysler perspective. Has potential for fresh-eyes and improving processes, but also for slowing recent progress

What Are Alliance Risks?

• If economy and car sales do not improve, Chrysler may still not succeed.
• Success is as dependent upon excellent execution of a strong plan as it as a good plan. The products resulting from the Alliance must be world class
• Probably ends Nissan Titan-Dodge Ram and Nissan-Dodge Versa-based project, already on hold, which were win-win. (Both were on hold already.)
• Small car/thin-profit-margin equation further stressed when small car was developed for European cost structures first and then adapted to appeal to more price-sensitive U.S. buyers
• Small cars may not sell in volumes high enough to make up for lower per-unit contribution
• Small cars growing, but not skyrocketing segment
• Cars developed with Fiat improve lineup, not be key to corporate health and profitability
• Fiat's turnaround not quite complete; facing same credit and cash-burn problems as every other OEM in 2009
• Cultural differences may prove as difficult to navigate as it was when Germans were in charge
• Combining two weak brands may not make for a stronger company
• Chrysler known for styling, innovative products like minivans and successful products like Dodge Ram and Chrysler 300, but prior generations of these products appreciated in spite of middling quality
• Both mostly known for mid-pack products, excepting inconsistent hit products (Chrysler 300, Fiat 500)
• Chrysler's success with Dodge Ram and minivans is presumed by Washington to be vehicles people no longer want to buy
• Washington pressure to aggressively go for small cars is at the center of rejection of viability plan, without real indications that small cars are anyone's path to profitability
• Results of recent strides made by each company to improve quality need to be consistently repeated to start to change perception. Takes several lifecycles to turn quality image around
• Requires unfailing diligence and unwavering dedication to continued materials, processes, and development improvement. Current Chrysler quality team gets it, but management changes and concerns about quick-turn profitability can impact quality versus cost decisions

Initial Plant Shutdowns/Assets Split In the bankruptcy filing, Chrysler listed the split of assets between the old and new companies. Below is assembly/engine plant split. (the new company can lease plants from the old company):

• Newly reported plant closings, by December 2010: Sterling Heights Assembly Plant and St Louis North
• Previously announced or in-progress closings: Newark (Durango/Aspen), Twinsburg (stamping), Connor Avenue, Kenosha (engines), Detroit Axle (parts)
• New Company ¤ Belvidere & Stamping (Caliber, Patriot, Compass) ¤ Warren Truck (LD Ram, Dakota) ¤ Jefferson North (Grand Cherokee, Commander) ¤ Toledo North and Toledo Supplier Park (Liberty, Nitro, Wrangler) ¤ Windsor Assembly (Grand Caravan, Town & Country, Routan) ¤ Brampton Assembly & Stamping (300, Charger, Challenger) ¤ Toluca Assembly & Stamping (PT Cruiser, Journey) ¤ Saltillo Assembly & Stamping (Ram HD, LD for Mexico only) ¤ Trenton Engine Plant (3.3L, 3.8L, and 4.0L V6); Trenton Phoenix (new Phoenix V6) ¤ Mack I & Mack II (4.7L V8) ¤ Global Engine Manufacturing Alliance (1.8L, 2.0L, 2.4L I4) ¤ Saltillo Engine (2.4L I4, 5.7L V8, 6.1L V8 engines, may add Phoenix V6)
• Old company ¤ Sterling Heights Assembly Plant (Avenger/Sebring) ¤ St. Louis North (HD Ram) ¤ St. Louis South (minivans, already closed) ¤ Conner Avenue (Viper, has been on sale for a year) ¤ Newark (Durango/Aspen, already closed) ¤ Kenosha (3.5L and 2.7L V6 for Sebring/Avenger, Charger/300).

Since 1986, AutoPacific has specialized in the analysis and research of the automobile industry. For over almost twenty years, AutoPacific has served the automotive industry with expertise in product development, product planning, marketing and consumer research. Its focus on the future of personal use transportation is provided through two divisions; Consumer Research and Consulting in Southern California and Industry Analysis in Detroit. In 1999, AutoPacific moved its headquarters to the Automotive Futures Center in Tustin, California. For more information, go to www.autopacific.com.

The new Chrysler wants to make this 200C for you

NAKANO: BACK SEAT DRIVING With Chrysler Filing Bankruptcy, the Company Gets a Chance at a 'Fresh Start' After filing for protection under Chapter 11 of the Bankruptcy Code on April 30, 2009, Chrysler LLC announced that the U.S. Bankruptcy Court has granted the relief the company requested in a series of court filings known as "First-day motions." The orders issued by the court will help the company continue to operate its business during the reorganization proceedings. Earlier in the week, Chrysler announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it had reached an agreement in principle to establish a global strategic alliance with Fiat SpA. Chrysler filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court to facilitate the restructuring and alliance. First-day motions were filed to support Chrysler's employees, dealers, vendors and suppliers, together with its customers and other stakeholders. The Court granted approval for the company's request to continue payment of wages and health and welfare benefits to employees and contractors, and continue its customer warranty programs. Bob Nardelli, Chrysler Chairman and CEO, said, "We accomplished a great deal today, including approval of certain First-day motions, which will enable us to transition into Chapter 11 and maintain normal operations as we move forward. Our focus now is on the next steps of this process, which we will pursue as efficiently and deliberately as possible." The Chrysler Chapter 11 case was filed in the U.S. Bankruptcy Court, Southern District of New York. The case number is 09-50002, with the Honorable Arthur J. Gonzalez presiding. More information about Chrysler's restructuring is available at www.ChryslerRestructuring.com.  

A JOURNAL OF LOS ANGELES & ITS CAR CULTURE  

That was LA Car's subtitle when it started back in 1997. It's original website address was about five times the size of lacar.com. Since then, La Car became LA Car. Its subtitle became Reporting From Car Culture Ground Zero, then From The Heart of Car Culture, to today's The Cars and Culture of Southern California. At all times, however, we aimed to chronicle the Southland's automotive spirit - much like one's own journal or diary. LA Car has always been a great source to come back to from week-to-week, to see what articles and reviews have been added to our rather staggering database. With Back Seat Driving, a.k.a. BSD (note the similarity to two well-worn abbreviations, BS and BFD) and Hot Wires - Hot & Tender News From the Car Culture (co-located with Back Seat Driving, and updated at least daily), we give you some reasons to come back more often (all opinions, by the way, are those of the respective author). So, go ahead and bookmark www.lacar.com. We'll be sure to always provide a link to Hot Wires and the latest Back Seat Driving blog entry. In the meantime, welcome to the journal and journey from the heart of the car culture. - Roy Nakano

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