WSJ: Chrysler Seeks Price Cuts From Suppliers By April 1
January 28 2009 - 6:24PM
Dow Jones News
Chrysler LLC has sent a letter to at least some of its parts
makers saying "all production suppliers" will have to cut their
prices by April 1.
Cutting parts costs is one of the requirements Chrysler must
fulfill to meet the terms of the bailout loans it has received from
the U.S. government. So far Chrysler has gotten $4 billion and
hopes to borrow $3 billion more by the end of March.
(This story and related background material will be available on
The Wall Street Journal Web site, WSJ.com.)
Chrysler and General Motors Corp. (GM), which has been given
$9.4 billion in federal loans, also are required to negotiate with
their banks and bondholders to reduce their debt, limit executive
pay, cut labor costs and present restructuring plans by Feb. 17
that show they can become "viable."
Chrysler informed suppliers of the price cuts in a Jan. 26
letter from its head of purchasing. The existence of the letter was
first reported by Automotive News.
The letter also said Chrysler is freezing what the company will
pay for raw materials this year, even if costs rise. A 5% price
reduction enacted last year will be continued through 2009, the
letter said.
Some suppliers said they had not yet received the letter. A
person familiar with the matter at a major supplier said the price
cuts will hurt many parts makers that are already ailing.
Automotive suppliers are already seeking up to $10 billion from
Washington themselves.
"It's obviously a financial hardship at the worst possible
time," the person said. "We are operating in a very, very
challenging environment already. We're not making money, and
essentially what they're asking is for us to take greater
losses."
To ease the burden, Chrysler will allow its suppliers to keep
90% of the benefit from any new cost-saving measures they
implement. In the past, Chrysler has required half of any
cost-savings a supplier achieved toward lower prices.
Chrysler's agreement with the government, "requires that all
stakeholders, including owners, executives, employees, dealers,
lenders and suppliers contribute in a substantial way," the company
said in a statement. Chrysler said it recognized that the auto
industry's financial crisis has "brought hardship to Chrysler" and
"created similar challenges" for its suppliers.
-By Alex P. Kellogg, The Wall Street Journal;
alex.kellogg@wsj.com
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