Chrysler says on track despite downturn

21/06/2008 - 0:22

DETROIT (Reuters) - Chrysler LLC is meeting or topping its financial targets despite the deepening slump in U.S. market, the automaker's senior spokeswoman said on Friday.

In an email sent to all Chrysler employees, Nancy Rae, the company's senior vice president in charge of communications, said Chrysler staff were likely to face "difficult" questions about the state of the company and the industry.

"Our full year plan for the market in 2008 has been aggressively conservative, allowing us to be better positioned for the current downturn," Rae said in her memo. "Despite the challenges, we are meeting or exceeding our financial targets."

The unusual memo was sent to all Chrysler employees on the same day the privately held automaker's larger cross-town rival Ford Motor Co warned the U.S. market for trucks and SUVs had weakened beyond its expectations.

In response, ratings agencies Standard & Poor's, Moody's Investors Service and DBRS all said they could downgrade Chrysler because of the weaker sales and falling residual values for bigger trucks and SUVs.

Rae's memo represented the company's most detailed and widely circulated disclosure on its performance since it was taken private by Cerberus Capital Management LP last year.

When Cerberus bought Chrysler from Daimler AG in August, executives said that one of the Chrysler's advantages would be that it would be freed of the burden of disclosing financial and other information.

But concerns about its performance and the performance of the U.S. auto industry have mounted this year. Chrysler has seen its U.S. sales drop 19 percent so far this year, the largest drop for any major automaker.

Analysts have said Chrysler is struggling with a product line-up that relies heavily on gas-hungry SUVs and trucks at a time when consumers are flocking to fuel-efficient cars in the face of record gas prices.

In her memo to staff, Rae highlighted some of the successes Chrysler has had in areas such as reducing low-margin fleet sales, cutting dealer inventory and consolidating dealerships.

Chrysler, she said, had reduced fleet sales by more than 20 percent year to date and cut dealer inventory by 67,000 units. The number of U.S. dealers, she said, has been cut to 3,488 stores from 3,684.

Chrysler is also pushing toward larger dealerships that carry all three of its brands, Chrysler, Jeep and Dodge. That step will allow it to cut overlapping products. Rae said 58 percent of Chrysler dealers now carried all three brands, up from 50 percent a year earlier.

Worldwide sales are down 14 percent year to date, Rae said, dragged lower by a 23 percent drop in the United States, Chrysler's largest single market by a wide margin.

Rae quoted Tim Price, a Cerberus managing director, as saying Chrysler was ahead of its cash flow forecast by $1 billion. Chrysler has previously said it lost $1.6 billion in 2007 and ended the year with $9 billion in cash.

The No. 3 U.S. automaker has been stung by criticism it cut spending on refinements such as interiors and reduced engine noise too aggressively under Daimler.

Rae said under its new owners Chrysler had approved 400 vehicle improvements, added an average of $1,200 of new content to its cars and light trucks and created the position of "chief customer officer" to focus on increasing satisfaction.

(Reporting by Kevin Krolicki; Editing by Andre Grenon)

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