Chrysler Outlook
Jerry S. Mendoza  /  AP
Chrysler LLC chairman and CEO Robert Nardelli answers questions from reporters earlier this year. Executives at Chrysler have said it will lose $1 billion or more this year.
updated 12/7/2007 8:08:21 AM ET 2007-12-07T13:08:21

For a newly private company, executives at Chrysler LLC haven't been too secretive about the numbers on their balance sheet.

Twice in the past two weeks, top executives have said Chrysler will lose $1 billion or more this year, leading several industry analysts and some employees to believe that they are preparing workers and the marketplace for further cuts in models, factory capacity and jobs.

"They don't have to say anything if they don't want to," said Global Insight analyst Aaron Bragman. "They're making a bit more of a public announcement to it, and I would surmise that is because there are more cuts coming."

The company delivered on some temporary cuts Thursday, saying it will shut down shifts at two U.S. pickup truck plants — St. Louis North and Warren, Mich. — for the whole month of January. It also will idle a pickup plant in Mexico for two weeks next month, all due to slumping pickup sales.

The truck plant shutdowns are temporary and designed to control growing inventory, said a person who was briefed on Chrysler's production plans. The person spoke on the condition of anonymity because the plans could be changed.

Chief Executive Robert Nardelli told a group of employees this week that the company is headed for a $1.6 billion loss this year. Last week, Executive Vice President of North American Sales Steven J. Landry told a group of Canadian business students that expenses were $1 billion more than revenue.

Even former Chrysler CEO Dieter Zetsche got in on the predictions, telling reporters in Washington on Tuesday that Chrysler isn't expected to be profitable this year or next. Zetsche, CEO of German automaker Daimler AG, led the sale of 80.1 percent of Chrysler in August to Cerberus Capital Management LP, with Daimler holding the remainder of the company.

All of this tells the analysts that people should be ready for more bad news out of Chrysler's Auburn Hills headquarters.

"They've absolutely got to make some additional cuts in expenses," said Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co. "Sales volumes are going to be difficult to achieve in 2008 because of the economy, tightening credit standards and that sort of thing. The fact that they've lost a lot of money with new owners doesn't leave a lot of room to look elsewhere."

Chrysler in November announced plans to cut up to 12,000 jobs, just after employees represented by the United Auto Workers ratified a new four-year contract with the company. The cuts include 8,500 to 10,000 hourly jobs and 2,100 salaried jobs through 2008, or about 15 percent of the company's work force. That's on top of 13,000 Chrysler job reductions announced in February.

Company spokesman Mike Aberlich said there are no present plans to make permanent reductions beyond what's already been announced. But he wouldn't rule out additional job or plant cuts.

"With the economy the way it is, with the market the way it is, you never quite say never," Aberlich said.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said the disclosures likely are directed toward employees and dealers, who will feel the effects of model or production cuts as the Cerberus private equity firm tries to get the company ready to take on a partner or perhaps be sold in an effort to turn a large profit.

"What they're really focused on is doing whatever it takes to fix the strategic issues in the company and prepare it for the next step," Cole said. "I don't think this is going to be a long, drawn out process."

Since its sale to Cerberus, Chrysler no longer has to report its earnings. If it loses money this year, it would be the second straight year of red ink. Chrysler lost $618 million in 2006 but made $1.8 billion in 2005.

Landry, while speaking to students in Halifax, Nova Scotia, also said Chrysler would reduce its number of models from 28 to around 20, which has the company's production workers worried.

The statements should worry Chrysler production workers, especially those who build slower selling products, the analysts said.

Bryce Cobb Jr., president of a United Auto Workers local at an engine plant in Trenton, Mich., said workers have fretted about cuts for the past three years. His plant makes engines for hotter selling products such as the new Dodge and Chrysler minivans and Jeep Wrangler, so there's less to worry about, he said. A new engine plant also is under construction at his site.

But at other plants, mainly on the vehicle assembly side, there is worry, he said.

"Unfortunately that puts a lot of people out of work if they do a reduction in (production) volumes," Cobb said. "I could be at another plant and be shaking in my boots right now."

Chrysler already has said it will eliminate four products through 2008: the Dodge Magnum wagon, the convertible version of the Chrysler PT Cruiser, the Chrysler Pacifica crossover and the Chrysler Crossfire sports car.

Some analysts expect Chrysler to realign its models so that all its cars are Chryslers, Dodge becomes exclusively trucks, and Jeep retains its off-road and sport utility vehicles.

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