Chrysler's turnaround on track with solid profits

Posted on July 31, 2012

Chrysler Group LLC reported another quarter of solid earnings Monday, posting a profit of $436 million and on track to reach $1.5 billion this year.

But its second-quarter numbers are likely to be eclipsed by the less-than-stellar results its parent company, Fiat SpA, is expected to release today. Fiat depends heavily on financially troubled Europe, where sales are slumping, but Chrysler is a minor player there, selling 87 percent of its cars and trucks in the U.S. and Canada.

Fiat-Chrysler Chairman and CEO Sergio Marchionne urged Chrysler employees not to forget the company’s recent near-death experience as they celebrate its latest success.

Chrysler’s second-quarter profit was down slightly from the $473 million it made in the first three months of 2012, but it was a whopping 218 percent better than the same period last year, when Chrysler repaid its bailout debts to the U.S. and Canadian governments and posted a $370 million loss.

But even excluding that one-time charge, Chrysler’s net income increased $255 million, or 141 percent.

“(O)ur preliminary second-quarter results, released today, show that your continued, determined efforts are putting us on a solid foundation to compete with the best,” Marchionne said in an email to Chrysler employees Monday, a copy of which was obtained by The Detroit News.

“Our accomplishments, made in the face of near-universal skepticism, imbue us with confidence going forward,” he said. “But staying humble is just as necessary to sustain our success. History teaches that it is easy to develop bad habits during good times. This is no time to cut corners, no time to become undisciplined in our execution, no time to forget how difficult it was to claw our way back to viability.”

The Auburn Hills automaker has consistently posted some of the strongest sales gains in the industry in the United States, robbing market share from General Motors Co. and other competitors, gaining 1.4 percentage points of share, to 11.5 percent, since the first of the year.

Chrysler’s quarterly revenue totaled $16.8 billion, up 23 percent from $13.7 billion in the second quarter of 2011. Its second-quarter modified operation profit was $755 million, up 49 percent from $507 million a year ago.

That growth was in contrast to the 58 percent decline in second-quarter earnings that Ford Motor Co. reported last week. Ford was hurt by declining sales in Europe and cooling demand in other foreign markets — a narrative that is likely to be repeated when GM releases its second-quarter earnings Thursday.

Fiat hit by European crisis

Most of Chrysler’s business is in the United States. The company sold 1.1 million vehicles worldwide in the first six months of 2012, but more than 834,000 of those were sold in the United States, where Chrysler has reported 27 consecutive months of year-over-year sales gains.

But that does not mean it is immune to the problems overseas.

That should be all too apparent when Fiat reports its financial results today. Fiat is struggling with a dramatic drop in sales in its Italian home market and other parts of Europe.

When Fiat took over a bankrupt Chrysler in 2009 as part of a bailout deal brokered by the Obama administration, analysts on both sides of the Atlantic worried the American automaker would become a drag on its bottom line. Instead, a resurgent Chrysler is offsetting Fiat’s worsening results.

“It looks like the reality of Chrysler’s year-over-year sales results is setting in,” said analyst Jessica Caldwell of

“Still, even though Chrysler’s success in the last 18 months is commendable, it isn’t strong enough in the long term to carry its parent company Fiat, which is running into some real problems with the European economic crisis.”

Workers closer to bonus

Chrysler’s net income for the first half of 2012 now totals $909 million on revenue of $33.2 billion.

In addition to providing welcome relief for Fiat, those numbers are also good news for Chrysler’s U.S. hourly employees. Monday’s results bring those workers one step closer to receiving the other half of the signing bonus they were promised when they ratified a new contract between the company and the United Auto Workers last year.

Under the terms of that agreement, workers received $1,750 when their union signed the contract and are due another $1,750 once Chrysler posts solid profits for four consecutive quarters.

Chrysler did that in the first quarter of 2012, and it did it again on Monday. That means workers still have two more quarters to go before they receive their checks.

And the company says the rest of the year looks good, despite the troubles overseas, as its new small car, the Dodge Dart, reaches full inventory at dealers. Strong sales are expected to continue for the full-size Chrysler 300 and the Jeep Grand Cherokee.

Chrysler said it expects full-year revenue of approximately $65 billion, a modified operating profit of at least $3 billion and net income of about $1.5 billion.

By: Bryce Hoffman, The Detroit News