Cut loose from its German parent DaimlerChrysler AG, the Chrysler Group intends to widen its global ties by establishing more international partnerships. The recuperating company will also push hard to slash long-term health care liabilities in forthcoming contract talks with the United Auto Workers (UAW).
Chrysler CEO Tom LaSorda said last Tuesday that the company expects to expand its partnership with Chinese automaker Chery Automobile Co. beyond small cars. That deal is expected to win approval soon from the Chinese government. The CEO also revealed that the company will look to form similar alliances to help it enter new markets and bolster global sales.
"It's something we would definitely pursue where it's in the best interest of the new Chrysler," LaSorda told reporters at the Chrysler's headquarters one day after DCX said that it would sell Chrysler to Cerberus Capital Management LP, a private equity firm. "We're not big in Southeast Asia, we have virtually no presence in India, and our presence in Russia is low."
LaSorda said that running what will soon be a privately held company is "kind of a dream come true." As a public company, the Auburn Hills-based automaker felt pressure to meet quarterly targets to satisfy shareholders, which sometimes led to poor management decisions. "We'll take a longer term outlook versus a shorter term outlook," he said. "Chrysler must demonstrate once and for all that we can win in this global market."
The goal to expand globally is crucial to the turnaround plan of the ailing automaker. It has to bolster sales outside the North American market to cope with its previous losses. While Chrysler's sales increased 1.2 percent in the United States in April, demand abroad was crept up by 17 percent.
As the automaker embarks on a new chapter in its automotive existence, LaSorda said that Chrysler also needs to reduce its health care spending, which is expected to hit $2.3 billion this year, up from $2.2 billion in 2006. Since September, the issue on health care benefits has been controversial for both Chrysler and UAW. The issue was heightened when the union refused to give Chrysler the same concessions it had granted to General Motors Corp. and the Ford Motor Co. The denial was a factor in DaimlerChrysler's decision to put Chrysler up for sale.
LaSorda said that health care and "overall economic costs" will be key bargaining issues in contract talks this summer with the UAW, and that all negotiations will be through Chrysler, "not through Cerberus." Critics in the industry expect health care will be a major issue for all three Detroit automakers during negotiations.
As part of the Chrysler sale deal, Cerberus took responsibility for Detroit automaker's $19 billion in long-term pension and health care liabilities. Craig Huston, an analyst with Gimme Credit, expects Chrysler will be able to wrestle some concessions from the union to lower spending. "If they can find ways to get that number down then the deal looks a whole lot better from (Cerberus') standpoint," Huston said.
Huston views the automaker's global expansion plans as less important than health care, but still significant. "Growing the business overseas will take some time. But clearly they need to try to reduce their reliance on the North American market as much as possible."
At the press conference, LaSorda said the company would rebound and reiterated that he will not split up the Chrysler, Dodge and Jeep brands. "These brands are staying together," he said. "They will not be broken up under any circumstances. It's critical that they stay together." Hours before the press conference, Chrysler and Cerberus CEO Steve Feinberg had separate meetings with leaders of the UAW and the Canadian Auto Workers.
CAW President Buzz Hargrove endorsed the sale, saying the meeting with Feinberg had reassured him that Cerberus would not split the automaker into pieces and cost more jobs. On Monday, Hargrove had demanded written assurance that the Chrysler deal would not mean more job losses for his membership. He subsequently received a letter from Cerberus affirming that it planned no additional job cuts beyond those outlined in Chrysler's restructuring blueprint, which calls for eliminating 11,000 factory jobs, including 2,000 in Canada, by the year 2009.
Before the announcement of Chrysler sale, some analysts and union officials expressed concern that private investors would be more inclined than other potential purchasers to cut payrolls and sell off assets for easy gains. "(Feinberg) was very clear that he is in here for the long term," Hargrove said in a press conference following the meeting at Chrysler's headquarters. "I'm glad Feinberg is at the helm. This is not about slice-and-dice."
UAW chief Ron Gettelfinger had expressed his support for the Chrysler sale when the deal was announced on Monday. LaSorda said Feinberg is a "straight-shooter," which is partly why both union chiefs took to him. The U.S. auto industry is "in his heart. It's in his blood," LaSorda said. "He drives American cars and trucks."
After the sale was announced, LaSorda and DaimlerChrysler CEO Dieter Zetsche, along with Feinberg and Wolfgang Bernhard, met with about 350 of Chrysler's senior managers in Auburn Hills. Bernhard, Chrysler's former chief operating officer, is now with Cerberus and will be an adviser to Chrysler.
Feinberg told the group that Cerberus' majority stake in Chrysler was a "once-in-a-lifetime chance" and that the automaker is the "only company to own." Chrysler would not be chopped into parts and sold off, Feinberg said in an email. He added, "Management's commitment is to build and grow the business. Failure is not an option." The cool breeze from the could make the difference to Chrysler's global affairs.
