In an open letter to Chrysler stakeholders, Chairman and CEO Bob Nardelli had outlined how he believes that the proposed alliance provides significant strategic benefits that will support the US carmaker's viability and long-term competitiveness.

In an open letter to Chrysler stakeholders, Chairman and CEO Bob Nardelli had outlined how he believes that the proposed alliance with Fiat provides significant strategic benefits that will support the US carmaker's viability and long-term competitiveness. His letter of explanation came as Cerberus Capital Management LP and Fiat Group yesterday outlined details of the strategic alliance that will see the Italian firm offering its platforms and technology in exchange for a 35 pct stake in the ailing US carmaker.

Letter to Chrysler stakeholders by Chairman and CEO Bob Nardelli

In our continuing effort to build a profitable enterprise for the future, we are announcing today that Cerberus, Chrysler LLC and Fiat S.p.A. have entered into a non-binding term sheet to establish a global strategic alliance. Upon completion of a due diligence process that is now underway and required approvals, the agreement is expected to be completed by April. This represents a positive business strategy for Chrysler in today’s difficult economic environment. Chrysler management believes the alliance provides significant strategic benefits that support our viability and long-term competitiveness.

As a condition of the U.S. government loan agreement, all constituents will be asked to contribute to Chrysler’s restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial. We recognize that the financial crisis, which has brought hardship to Chrysler, has created challenges for all of our dealers, suppliers and other constituents, and we are committed to working together to find ways to support our mutual and sustained long-term viability.

This alliance would adhere to the conditions of the U.S. government loan, and help the company provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace. The alliance would help sustain Chrysler’s product development, manufacturing and sales operations here in the U.S., which further supports our viability plan and preserves American jobs. Our partners at the UAW have announced their endorsement of the proposed alliance.

Alliance Continues Chrysler’s Aggressive Restructuring

Seeking partnerships and alliances has been a cornerstone of our recent restructuring efforts. Following the separation from Daimler in August 2007, Chrysler launched a comprehensive restructuring to address declining market conditions and transform the business into an independent American auto company, aligned with consumers’ emerging needs. Since 2007, Chrysler has:

• Reduced dealer inventory by 19 percent/more than 90 thousand units

• Discontinued four vehicle models

• Eliminated 1.2 million units, or 30 percent of previously installed capacity

• Disposed of $700 million in non-earning assets

• Reduced total employment 36 percent, to its lowest level since 1934

• Reduced fixed costs by more than $2.4 billion

As a result, Chrysler began 2008 running ahead of its targets six months into a conservative plan before the unprecedented drop in vehicle sales caused by the financial crisis interrupted its business transformation. As the economy declined in late 2008, Chrysler responded quickly and aggressively to keep production and dealer inventory aligned with shrinking U.S. market demand, by making further reductions in manufacturing schedules. The extensive restructuring, cost reduction, and productivity enhancements support Chrysler’s competitive position in the continuing economic downturn.

The restructuring Chrysler began in 2007 has already produced gains in new product quality and reliability. Even in the toughest automotive market in more than two decades, we continue to improve our value, safety, quality, warranty, fuel-economy and innovation for our customers. For the 2009 model year, over 88 percent of Chrysler’s vehicles achieved five stars for frontal crash tests, 86 percent achieved the highest rating for side impact protection and 73 percent of our product line up offers improved fuel economy compared to last year’s models.

Using Design for Six Sigma, the Company focuses on the smallest details in order to delight customers and is committed to flawless execution. A new Interior Design Studio is significantly raising the craftsmanship and improving the materials in all Chrysler interiors. The Company is also reducing complexity and engineering changes to give customers better materials without increasing costs.

Reflecting the Company's focus on designing and building in quality from the beginning, Chrysler had the industry's lowest number of recalls in 2008 as reported by NHTSA -- a total of 360,000, down from 2.2 million in 2007. In addition, internal warranty data show that Chrysler has achieved the lowest warranty claim rate in its history, with a 30 percent improvement in the last 12 months. Chrysler plans to continue to set new records, month by month, during 2009.

Benefits of Chrysler / Fiat Alliance

Under the agreement, Chrysler will have access to all Fiat group vehicle platforms, with the exception of Ferrari, which would complement our current product portfolio with fuel-efficient, environmentally-friendly small cars and powertrain technology. The alliance would greatly increase the global reach for our Jeep, Dodge and Chrysler brands in markets outside of North America, and Fiat’s distribution organization would provide Chrysler a strong partner to help build our brand’s presence in important markets where we have little presence today. Fiat would benefit from product and technology sharing as well, with access to our vehicle platforms and our manufacturing capabilities in North America. In addition, Chrysler would assist Fiat to bring their brands to the U.S. market.

Chrysler is committed to work together with our owners, lenders, employees, dealers, suppliers and Chrysler Financial to implement our viability plan fully adhering to all conditions of our government loan. Today’s announcement is part of our continuing commitment to build a profitable enterprise for the future, consistent with the viability plan we submitted to congress. The agreement announced today is just the first step toward this prospective alliance, and we intend to keep all stakeholders informed of key developments on an ongoing basis.

Bob Nardelli
Chairman and CEO, Chrysler LLC