Chrysler Group's Long Term Recovery Plan Focusing on Fuel Efficient Small Cars, Global Markets and Strengthened Alliances
For the short term, the group to cut production capacity by 400,000
and workforce by 13,000

  Chrysler Group, the North America Division of DaimlerChrysler (DCX), recorded an operating loss of EUR 1.1 billion with reduced sales of EUR 47.1 billion in 2006. The sales were 6% less than the previous year because of a sales slump in the US.

  In February 2007, DCX announced the Chrysler Group "Recovery and Transformation Plan" for the three years from 2007 to 2009. In a short-range, the plan reduces production capacity by 400 thousand a year and number of employees by 13 thousand seeking a return to profitability in 2008. In the long range, the plan for the "Transformation" has following three backbones: 1) Shifting to fuel efficient small cars, 2) Business expansion in global markets other than North America and 3) Strengthened alliances with other entities. Additionally, it says that any option will not be excluded from the study to find out the best solution, such as separation of Chrysler Group and reconstruction including capital alliances with other companies.

■In 2006, the Chrysler group resulted in the operating loss of EUR 1.1 billion with 2.14 million in sales in the US at 7.0% less than previous year.

  The group's global sales volume saw a reduction from 2.81 million in 2005 to 2.65 million in 2006. It was mainly affected by the US sales that reduced by 7.0% to 2.14 million lowering the share from 13.2% to 12.6%.

  Accordingly, the production volume in 2006 reduced to 2,548,731 while it had been 2,760,467 in 2005, and the sales amount reduced by 6.0% to EUR 47.1 billion resulting in an operating loss of EUR 1.1 billion while it had been a profit of EUR 1.5 billion in 2005.

(Note) The sales in the US of the Chrysler group occupy 80% of the total group sales, and the three quarters of the sales are represented by that of light trucks. In 2006, the US market suffered from a significant sales reduction of large SUVs/pickups/minivans because of the increased price of gasoline, raised interest rates and so on.

■The "Recovery and Transformation Plan" for Chrysler Group from 2007 to 2009

  In February 2007, DCX announced the "Recovery and Transformation Plan", the three-year plan from 2007 to 2009 for the Chrysler Group. In the short term, it aims at a return to profitability, i.e. the "Recovery", in 2008, and in the long run, it commits to a reform of the business model, i.e. the "Transformation".

■The Recovery and Transformation Plan for Chrysler Group from 2007 to 2009

Short-term target	Return to profitability in 2008. By 2009, including the reduction of material costs by EUR 1.15 billion (USD 1.5 billion), it will improve the finance by EUR 3.5 billion (USD 4.5 billion) and assure the 2.5% profit on sales in 2009.
Long-term target	Aiming at a long run success of the Chrysler Group, the business model will be modified reforming the structure to cope with the change of the markets.

Source: DaimlerChrysler's press release on 2007.2.14
(Note)	The financial improvement of EUR 3.5 billion will be attained of which 20% by the sales increase and 80% by reduction of variable costs of materials/production and fixed costs.

■Short-term target: Return to profitability in 2008 by sales increase and cost reduction

  The short term target for the Chrysler Group announced by DCX is a return to profitability by introducing more than 20 new models for the three years by 2009 while reducing production capacity by 400 thousand and cutting workforces by 13 thousand. In 2009, it plans to improve the finance by EUR 3.5 billion (USD 4.5 billion) and to assure the 2.5% profit on sales.

■Chrysler Group's short-term target: Recovery of profitability by increasing sales and reducing costs

	Summary
Sales increase and control,	The group continues the "Product offensive" strategy launching more than 20 new models and 13 face-lift models for the three years from 2007 to 2009.
	The retail and fleet sales mix will be modified to a reasonable level in order to improve the efficiency of marketing and incentive spending. Acceleration of introduction of new models to global markets.
	Reduction/optimizing of the dealer-networks to improve profitability of dealers.
Production capacity adjustment	Reduction of production capacity by 400 thousand. In 2007, it will drop one shift at Newark assembly plant in Delaware which produces the full size SUV Dodge Durango/Chrysler Aspen and also one shift at Warren truck plant in Michigan. In 2008, it will additionally drop one shift at St. Louis South assembly plant in Missouri. In 2009, It will close the Newark assembly plant.
	It will close the Parts Distribution Center in Cleveland, Ohio in December 2007. The production of power-train, stamping and parts assembly plants will be adjusted according to the reduction of capacity of vehicle assembly plants.
Headcount reduction	Hourly employees will be cut by 11 thousand or 16% of the total entity over the three years, which consists of nine thousand in the US and two thousand in Canada.
	White collar workers will be cut by two thousand, one thousand each in 2007 and 2008.
Material and other costs	Yearly material costs will be reduced by EUR 1.15 billion (USD 1.5 billion) by 2009. Disposal of logistic service and other support areas will be studied.

Source: DaimlerChrysler's press release on 2007.2.14
(Notes) 1.	The financial impact of restructuring of EUR 1.0 billion (USD 1.3 billion) including cash expenses of EUR 800 million is appropriated for 2007. The impact is appropriated also for 2008 and 2009.
2.	In 2007, subsequently to 2006, the production will be adjusted to compress dealer inventories to meet market demands. Accordingly, the drawback in profit of approximately EUR 230 million (USD 300 million) is appropriated.
3.	Note that the Chrysler Group closed 16 plants (five assembly plants and 11 component plants) and cut approximately one thirds of the employees from 2001 to 2005.

■Long-term target: Modification of the business model setting fuel-efficient compact cars, global markets and strengthening the alliances at the core

  Currently, the Chrysler Group sells more than 90% of the product volume in NAFTA region and its sales are heavily weighted toward minivans, trucks and SUVs. Those two factors were advantages for the group, but a sharp increase of gasoline price has turned it to a disadvantage.

  The long-term target announced by DCX emphasizes a modification of the business model which is based on following three cores: 1) Production planning with "Customer and Brand Focus", 2) "Better Global Balance" and 3) Strengthened "Alliances and Partnerships".

■Chrysler Group's long-term target: Strategic Transformation

Current business model Product-centric (weighed on minivans, trucks and SUVs) NAFTA-centric (more than 90% of the products sold in NAFTA region) Internal Resource Driven

Modified business model Customer and Brand Focus Continue Product offensive strategy with more Customer and Brand Focusing, Modify the product mix investing in power-trains which support products Global Balance Establish optimal production, components production and sales locations with Global Balance for the world-scale growth and profitability Alliances and Partnerships Through Alliances and Partnerships achieve both growth and cost reduction. Effective alliances to expand both regions and product segments

Source: 2006 Results Annual Press Conference & Conference Call
(Note)	The modified business model reportedly includes the extended sharing of parts and architecture with Mercedes-Benz models.

■Promotion of shift to passenger cars and strengthening availability of power-trains

  Within the activities of "Customer and Brand Focus" in the long range "Transformation Plan" for the Chrysler Group, expanded introduction of fuel efficient passenger models and crossover models is included. And the sales mix of light trucks for the US is reportedly planned to be lowered from 76% in 2006 to 60% in 2011.

  As a part of this activity, the group made it public in February 2007 that it would procure a lower-small-class model which did not exist in its model line from Chinese Chery Automobile, and bring it to the markets of North America and Western Europe. The current smallest and lowest-priced model of the Chrysler Group is the Dodge Caliber of the upper small class.

  Among the existing models, minivans, pickup trucks and some specific rear-wheel-drive full size vehicles will be reinforced while the number of platforms will be reduced from 12 in 2006 to seven in 2012.

  Total amount of EUR 2.3 billion (USD 3.0 billion) will be invested in power-trains to support the introduction of new models and the transition towards fuel efficient product formation.

  As for gasoline engines, the new V6 engine with module structure developed by DCX will be introduced, in addition to the start of the installation of 4-cylinder engines developed in a collaborative project with Mitsubishi Motors Corporation and Hyundai Motor Company. The installation of clean BlueTec diesel engines is also planned to expand. In 2008, a hybrid version of the Dodge Durango will appear.

  As for transmissions, the group announced the Dual Clutch system will be produced under the alliance with GETRAG Corporate Group.

■Chrysler Group: Strengthening products under the "Customer and Brand Focus"

	Summary
A shift to passenger cars, entry to new commercial vehicle markets	Continues shifting from light truck-centric to passenger cars and crossovers.   Under the alliance with Chinese Chery, the Chrysler/Dodge brand small car will be sold mainly in the US and Western Europe. Awaiting approval by the Chinese government. It is said to be a lower-small model based on the Dodge Hornet Concept exhibited at Geneva Motor Show in 2006.
	Including the new entry into the class 4 and 5 of medium size truck market, the group enters to new commercial vehicle markets.
	As for existing products, minivans, pickup trucks and specified rear-wheel drive full-size models will be reinforced. At the same time, the number of platforms will be reduced for efficiency from 12 in 2006 to 7 in 2012 (See note 2).
Strengthening power trains	Investing EUR 2.3 billion (USD 3.0 billion), the production system of engines, transmissions and axles for the fuel-efficient model mix will be maintained.
	DaimlerChrysler will introduce a new V6 engine with module structure. The structure allows the production from basic to high performance engines, and existing four series of V6 engine will be integrated to one series of the new V6 engine family. The Chrysler Group will reportedly produce this engine at three plants including the Kenosha plant in Wisconsin with a USD 2.0 billion investment, and the Mercedes Car Group will produce it in Germany. It will reportedly be installed starting in 2010 MY.
	The Jeep Grand Cherokee equipped with BlueTec brand diesel engine will be released to 45 states, excluding five states such as California, in March 2007. Several models with the BlueTec diesel engine which meets the new emission gas regulations to be implemented in 2009 are planned to follow. It is said the group, with the cooperation of the Mercedes Car Group, intends to lead the US market of diesel engines (See note 3).
	In 2008, the Dodge Durango two-mode hybrid version will be released. The hybrid system is being developed jointly with GM and BMW. Introduction of a mild hybrid model is also under study.
	The Chrysler Group announced the transmission with Dual Clutch system will go into production under the alliance with GETRAG in Germany in February 2007. It is reportedly planned that the group will produce 700 thousand annually for the medium size FF vehicles to the US market such as the Dodge Avenger and so on, starting in 2010MY at the Kokomo plant in Indiana under the investment of USD 560 million.

Source: DaimlerChrysler's press release on 2007.2.14, Getrag's press release on 2007.2.15
(Notes) 1.	Lower-small class includes the Chevrolet Aveo, Toyota Yaris, Honda Fit, Nissan Versa, Hyundai Accent and so on.
2.	Number of Unibody platforms for rear-wheel drive will be reduced from five in 2006 to three in 2012, for front-wheel drive from three to two, and for body-on- frame platforms from four to two, respectively. In total, the number will be reduced from 12 to seven.
3.	The BlueTec is a generic name of clean diesel engines to be used by also VW/Audi in the US market as a common brand.
4.	The Chrysler Group installed Jatco made CVTs as a new type transmission on the Dodge Caliber and Jeep Compass/Patriot.

■In 2006, four models with new 4-cylinder engines were released, and minivans will be renewed in 2007

  The Chrysler Group brought 10 new models, the maximum number of models in its history, to the market, including four medium or small sized passenger cars or crossover models. The four models were the Dodge Caliber, Jeep Compass/Patriot and Chrysler Sebring, and all were installed with 4-cylinder 2.4 liter engines jointly developed with Mitsubishi Motors Corporation and Hyundai Motor Company. The fuel efficiency at high speed driving is at the level of 30 miles per gallon (100km/8 liters).

  In 2007, eight new models and 5 face-lifts will come up. The new series of minivans, which the Chrysler Group has competitive advantage in the US market, will be given a "Swivel'n Go" system in which the second row seats swivel to produce a space for playing games.

  In 2008, a crossover model based on the Sebring/Avenger platform will be launched.

■Chrysler Group: The new model introduction plan in 2007 and after

Year/month of release	Models	Summary
January 2007	Dodge Avenger	A sister model of the Chrysler Sebring and the Stratus replacement. Equipped with a 2.4 liter or V6 3.5 liter engine.
Spring 2007	Dodge Sprinter	A Mercedes-made commercial vehicle and the new model of Sprinter. It will be assembled at South Carolina plant of Freightliner.
	Chrysler Sebring Convertible	Convertible model of the Chrysler Sebring. Additionally to the conventional canvas top, the retractable hard top will be available.
Summer 2007	Dodge Viper SRT10	A 10-cylinder engine will be installed. The maximum power of 510 hp of 2006 model is planned to be raised to 600 hp. It will be the highest power model in production. The second will be the Chevrolet Corvette Z06 with a 505 hp engine.
	Dodge Caravan/ Chrysler Town & Country	In addition to the conventional "Stow'n Go Seating" which gives a flat floor after the stowing, the "Swivel'n Go" system will be equipped as optional to allow the rotation of the second row seats swivel to face the third row seats, and with a table set you will be able to enjoy games.
		Styling will be changed from conventional egg-shape to formally sensed boxy style, thus expanding the interior space. Note that the Chrysler Group sold 370 thousand minivans in the US market in 2006, and is the No. 1 share holder among auto manufacturers.
		Targeting the year of 2010, it plans reportedly to install the M-Benz made BlueTec 2.2 liter Global Diesel engines and the Dual Clutch transmissions on the new minivan series.
	Dodge Caliber SRT4	The high performance model of Dodge Caliber installed with a 300 hp 2.4 liter turbo engine. 0 to 60mph within 6sec will be derived.
Autumn 2007	Jeep Liberty	Full changed model of the Jeep Liberty. Equipped with a V6 4000cc or V6 3700cc engine
	Dodge Ram 4500/5500	A chassis Cab of Dodge Ram. The 4500 falls in Class 4 and the 5500 in Class 5. It will be installed with a Cummins made 6700cc 305 hp diesel engine.
2008	Mid-sized Crossover	At the beginning of 2008, a crossover model based on the platform of new Sebring/Avenger will be introduced with Dodge brand. The production is planned at Toluca plant in Mexico by annually 150 thousand units. A Chrysler brand model is reportedly planned to make its debut in 2010. It will be a competitor of the Ford Edge and the Toyota Highlander.
	Dodge Challenger	Based on the shortened platform for the Chrysler 300, a rival model of the Ford Mustang will be developed and introduced.
	Chrysler Firepower	It is reportedly under study as a more luxury model based on the Dodge Viper SRT-10.
	Jeep Gladiator	A pickup truck based on the Jeep Wrangler. Since the pickup truck sales are slowed down, it is said the commercialization is under examination.
	Chrysler 300: Dodge Charger/Magnum	It is said that the Chrysler 300 and Dodge Charger/Magnum will have a minor change and the sharing of parts and system with the M-Benz C Class/E Class will be promoted.
2009-2010	Imperial Concept	It is a high class model based on the Chrysler 300 platform exhibited at Detroit Auto Show in 2006, and is under study for commercialization. It is planned to be powered by the V8 5700cc/6100cc engine.

Source: 2006 Results Annual Press Conference & Conference Call, Automotive News 2007.2.5 and other

■Chrysler Group: New models introduced in 2006

Year/month of release	Models	Summary
January 2006	SRT8 GRD Cherokee	The high performance model of the Jeep Grand Cherokee. It was installed with a V8 6.1 liter engine. Maximum power of 425 hp. It was priced USD 40,800 and above.
March 2006	Dodge Caliber	A 5-door compact car. It was based on the new platform developed jointly with Mitsubishi Motors which Chrysler calls as "GS platform". The model was powered by 1800cc and 2400 cc engines.
August 2006	Jeep Compass	A crossover model based on the Dodge Caliber. A softer and more contemporary design than that of its sister model, the Jeep Patriot, was adopted. A 2400cc engine is installed.
September 2006	Chrysler Aspen	Chrysler's first full size SUV. A sister model of the Dodge Durango. Installed with a V8 4700cc or V8 5700cc engine with Multi-displacement system
Sep. & Oct. 2006	Jeep Wrangler 4dr & 2dr	Fully redesigned model of the Jeep Wrangler since '97. In September the Jeep Wrangler's first four-door model, the Unlimited, and in October two door models were released. The models retained the body-on-frame structure to improve the off-road capability, carrier space and ride comfort on a paved road.
October 2006	Dodge Nitro	The Dodge brand's first medium size SUV. A sister model of the Jeep Liberty. A V6 4000cc or V6 3700cc engine was equipped. The rivals are the Ford Escape, Chevrolet Equinox, Nissan Xterra, and so on.
October 2006	Chasis Cab	A chassis Cab of the Dodge Ram 3500 (Class 3). For commercial and agricultural use.
November 2006	Chrysler Sebring Sedan	A medium size sedan. A clear alternative to Japanese and European cars such as the Toyota Camry and Honda Accord. A four-cylinder 2400cc, V6 2700cc or V6 3500cc engine was installed.
December 2006	Jeep Patriot	A crossover model based on the Dodge Caliber. The model retained the Jeep's traditional boxy design, but with chassis based on passenger car's. A 2400cc gasoline engine was installed.

Source: 2006 Results Annual Press Conference & Conference Call, Automotive News 2006.8.28 and other

■Sales in other regions than North America will be doubled to 400 thousand units in 2012.

  As to the "Global Balance" in the long range "Transformation Plan", the sales for other regions than North America will be doubled to 400 thousand by 2012, including the sales for Europe also doubled to 200 thousand at share of 1.4% by 2009. According to the global business expansion, the procurement from low cost countries is planned to increase by EUR 3.8 billion (USD 5.0 billion).

  The Chrysler Group strengthened the business in the region other than North America from 2003 and it resulted in surplus in 2004. The sales volume for other region than North America expanded to 206,925 in 2006, while it had been 180,088 in 2005. The sales for Europe which occupied more than half of above volume counted 110,599 with a 20% increase.

  The number of models sold in other region than North America is to be increased from 9 in 2003 to 20 in 2007. The Dodge Caliber/Avenger (Stratus replacement), Jeep Compass/Patriot introduced in 2006 and 2007 were said to have been developed taking the markets outside of North America also into the consideration. In the future, more models for the global markets will reportedly be developed and released.

■Production of the Chrysler Sebring and Dodge crossover model in China and also licensed production in Russia

  The Chrysler Group expands the overseas production under alliances or licensing. Investing USD 350 million, the group started the production of the Chrysler 300 and minivans in China and minivans in Taiwan in 2006. These are included in the plan announced by DCX in September 2005, to make a USD 1.5 billion investment on China and Taiwan jointly with alliance partners by 2008. The new Chrysler Sebring is planned to be produced in China in 2007, and also the Dodge brand crossover model based on the Avenger in 2008.

  In Russia, under the alliance with GAZ (Gorkovsky Avtomobilny Zavod ), old models of the Chrysler Sebring and Dodge Stratus are planned to be produced.

■Chrysler Group: Production in China and Taiwan to be expanded

Production location	Production model
Beijing Benz	In 2006, Beijing Benz-DaimlerChrysler Automotive started the operation of a new plant and launched the production of the M-Benz C-Class/E-Class and Chrysler 300C.
	In the second half of 2007, the new Chrysler Sebring sedan will be produced. Four cylinder engines will be supplied from Dundee plant of Global Engine Manufacturing Alliance in Michigan.
South East (Fujian) Motor Co., Ltd.	It will start a licensed production of Chrysler minivans in 2007. They will be sold in the mainland of China.
Allied production base in Fujian	The Dodge brand crossover model based on the Avenger platform which will be produced in North America toward the end of 2007, is reportedly planned to be assembled in either one or more allied local production bases in Fujian in mid 2008. (South East (Fujian) Motor is one of candidates.)
(Taiwan) China Motor Corporation	It started a licensed production of minivans, the Chrysler Town and Country in April 2006. A joint corporation was established to sell the Chrysler cars in Taiwan.

Source: DaimlerChrysler's Annual Report 2006, Press release on 2005.9.16, Automotive News 2006.7.31

■Chrysler Group: In Russia, under the alliance with GAZ, old models of the Sebring and Stratus to be produced.

GAZ in Russia will produce the old Chrysler Sebring/Dodge Stratus and sell them domestically with GAZ brand. GAZ bought the equipment of Sterling Heights plant in Michigan where the both models had been produced. The engines for the models will be supplied from Saltillo plant of the Chrysler Group in Mexico.

Source: DaimlerChrysler's press release on 2007.2.27

■Making full use of alliances

  As to "Alliances and Partnerships" in the long range "Transformation Plan" for the Chrysler Group suggests full use of alliances such as OEM supply of minivans to VW, joint development of hybrid system with GM/BMW and so on. The Chrysler Group also has a plan to sell the 4-speed AT production line to Chery in China relating to the procurement of small cars.

■Chrysler Group: Expands Alliances and Partnerships

	Summary
VW	The group will conduct an OEM supply of minivans based on the next model of Chrysler and Dodge minivans to VW for their sales in North America from 2008.
Mexican market	The group plans to import Cargo vans with a payload of 1ton produced by China Motor in Taiwan into Mexico and sells them with Dodge brand.
	The group has sold Hyundai made small cars as the Dodge Atos since 2000.
Selling an AT production line to Chery in China	The group planned to procure small cars from Chery Automobile in China. For the small cars' production, the group plans to sell the 4-speed AT production line of Kokomo plant in Indiana to Chery Automobile, and Chery transports the equipment to China and produces ATs for the small cars to be supplied to the Chrysler Group (See note).
GEMA	Global Engine Manufacturing Alliance (GEMA), the joint corporation with Mitsubishi Motors and Hyundai Motor started production at the Dundee No.1 plant in Michigan in 2005. Following this, in October 2006, they started the No.2 plant thus expanded the annual production capacity to over 800 thousand. Three companies including Mitsubishi and Hyundai plan to increase the annual production capacity of engines which they developed jointly to 1.8 million.
GM/BMW	The group and GM/BMW are jointly developing the two-mode hybrid system.

Source: DaimlerChrysler's press release on 2007.2.14, Automotive News 2007.1.22
(Note)	The Chrysler Group reportedly plans to install a production line for the Dual-Clutch transmission in Kokomo plant after they sell the 4-speed AT production line to Chery Automobile.

■Global production of the Chrysler Group brand models keeps a 2.8 million level (CSM Worldwide forecast)

  According to CSM Worldwide, the Chrysler Group's global production volume will maintain a 2.8 million level. It was 2.58 million in 2006.

  The production in the US which was 1.55 million in 2006 will increase over 1.60 million in 2007 and 2008. But in and after 2010, it will reduce to a 1.45 million level. The production in Canada which was a 600 thousand level in 2006 will expand to a 700 thousand level in and after 2010. The production in Mexico will reach at slightly less than 400 thousand in 2009, and then it will decline gradually to a 300 thousand level.

  The production in China which was slightly less than 6 thousand in 2006 will expand to 270 thousand in 2012 including the small cars which will be produced by Chery Automobile and sold in North America and Europe.

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