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Chrysler offers revival plan but skeptics remain

Chrysler's new boss offered an ambitious outlook for the automaker on Wednesday, saying it would more than double sales, roll out a dozen new models built on Fiat platforms and pay back debt to US taxpayers over the next five years.

Fiat Chief Executive Sergio Marchionne said Chrysler would break even on an operating basis in 2010 and on a net basis by 2011. He said the automaker had built up its cash since it emerged from a fast-track bankruptcy funded by the Obama administration in June.

The financial projections were the first Chrysler has offered since Marchionne took management control of the US automaker and addressed concern about the financial toll of Chrysler's continued slide in US sales.

But Fiat's turnaround plan hinges on a range of upbeat assumptions: Chrysler will have to recover market share lost as it slid toward bankruptcy, the US market needs to stage a gradual recovery and Fiat will need to find new overseas markets for Chrysler models led by its Jeep brand.

Marchionne said the plan would push the limits of what Chrysler's engineers and dealers could deliver but said his experience spearheading Fiat's own turnaround five years ago showed it could be done.

“Some of you are going to walk out of here skeptical, and some of you are going to be downright incredulous,” said Marchionne, who was joined on stage by Chrysler's 24 top managers. “We have been here before.”

Marchionne unveiled a long-awaited turnaround plan at Chrysler's headquarters that ran for over eight hours and included references to topics ranging from Machiavelli to singer Bobby McFerrin to Fiat's engine technology.

He said many analysts had misjudged how much Chrysler had been able to reduce its costs

“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 could be short on time to steer its faltering operations toward recovery and rebuild interest among American consumers.

In October, the most recent month for which there is industry data, Chrysler's US sales fell 30% even as General Motors Co GM.UL reported its first monthly sales increase in nearly two years.

For the year to date, Chrysler's US sales are down almost 39% and it has had to rely on far more aggressive discounts than rivals to sell cars and trucks.

Marchionne also steered clear of a key question for Chrysler's workers: he did not say where it will build the new models now on the drawing board, including vehicles intended to make it competitive in the mid-sized and compact car segments where it now lags rivals.

“We know our shortcomings. We've been honest and frank,” Marchionne told an audience of several hundred analysts, reporters, dealers and civic leaders. “Now we just need to go out and fix it.”




Marchionne said Fiat and Chrysler's businesses were now “inextricably intertwined” and would provide the US automaker access to fuel-saving technology and engine technology it could not have developed on its own.

Fiat was given a 20% stake in Chrysler in exchange for revamping Chrysler's investment-starved vehicle line-up, so the presentation by Marchionne represented the first detailing of what Fiat was putting into the automaker in exchange.

By 2014, he said half of Chrysler's cars would be built on platforms developed by Fiat and 40% would have engines supplied by the Italian automaker.

Chrysler also projected that it could save some $2.9 billion over the next five years by sharing parts purchased with Fiat.

Taking aim at a persistent weakness in Chrysler's operations, the new management team under Marchionne said they expected sales outside North America could account for 18% of overall sales volumes by 2014. That would be up from a recent low of 8% in 2006.

“It's an ambitious plan,” said Erich Merkle, an auto industry analyst with

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

Many top US 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 US 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 US auto sales this year pushed it to the brink of liquidation.

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

Marchionne said it had taken five months for his team to develop the plan for Chrysler, adding that the company's silence over that time had cost it sales.

“We paid the price,” he said. (Reuters)