Bloomberg News

Chrysler Group Quarterly Net Income Rises to $381 Million

October 29, 2012

Chrysler Group LLC, boosted by demand for 200 sedans and Jeep Grand Cherokee sport-utility vehicles, said its third-quarter net income rose 80 percent to $381 million from a year earlier.

Revenue for the quarter increased 18 percent to $15.5 billion, the Auburn Hills, Michigan-based automaker said in a statement yesterday. Adjusted operating profit rose 46 percent to $706 million. Fiat SpA (F), Chrysler’s majority owner, is on pace to lose 700 million euros ($903 million) this year in Europe and is scheduled to report its results separately today.

Chrysler and Fiat will also update their 2014 business plans today, Sergio Marchionne, chief executive officer of both companies, said this month. As Chrysler meets or exceeds targets for market share, revenue and profit, the bonds issued when the company repaid government loans in May 2011 have climbed. Chrysler’s struggling partner Fiat may have to cut its 2014 revenue target by 15 billion euros, according to a Bloomberg survey of 13 analysts.

“You’ve got better market share in the U.S. and an increasing market in the U.S., so that’s a double-whammy to the revenue line” for Chrysler, Richard Hilgert, an analyst for Morningstar Equity Research in Chicago, said by telephone.

U.S. light-vehicle sales for Auburn Hills, Michigan-based Chrysler rose 24 percent in the first nine months and its share of the U.S. market increased to 11.5 percent from 10.6 percent a year earlier, according to researcher Autodata Corp. Deliveries of the 200 sedan during the period surged 71 percent to 100,267 and the Grand Cherokee climbed 31 percent to 112,075.

Confirmed Forecasts

Chrysler in yesterday’s statement confirmed its 2012 forecast of about $1.5 billion in net income and revenue of about $65 billion. Richard Palmer, chief financial officer of Chrysler and Fiat, said in July that the company would “upgrade” its guidance after reporting third-quarter results.

“Unless they’re planning some really huge capital expenditures in the fourth quarter, I don’t see any reason why they shouldn’t be able” to exceed most of their 2012 forecasts, Hilgert said. Chrysler probably will generate free cash flow of about $3 billion this year, exceeding Morningstar’s original estimate for the year of less than $1 billion, he said.

Fiat, based in Turin, Italy, rescued Chrysler through a government-brokered alliance in 2009. The Italian automaker relies on its U.S. partner as Europe’s debt crisis derails its own business plan. Fiat has suspended investments in Italy and delayed new models such as the Punto hatchback as Europe’s auto market heads for the biggest annual decline in 19 years, according to industry group ACEA.

Reversed Relationship

“It’s like the parent and the child relationship has reversed,” said Rebecca Lindland, an analyst with IHS Automotive in Boston. “The child has hit the lottery. Chrysler has become the Justin Bieber of the auto industry, a spunky little upstart.”

Chrysler is benefiting from a rising U.S. auto market. Light vehicle deliveries are on pace to increase at least 10 percent for the third consecutive year, the first such streak since 1973. Sales of light vehicles are on track to exceed 14 million for the year for the best annual total since 2007, according to Woodcliff Lake, New Jersey-based Autodata.

Chrysler introduced 16 new or refreshed models in the 19 months after it emerged from a U.S.-backed bankruptcy in June 2009. The automaker in September provided dealers a preview of its model lineup through 2014, essentially replicating a September 2010 briefing in which it showed vehicles that were being introduced as new or redesigned under Fiat’s control.

Chrysler’s Credibility

“We made a set of promises then about delivering high- quality, competitive products that would transform their showrooms,” Marchionne, 60, said yesterday in an e-mail to employees referring to the 2010 dealer meeting. “We have lived up to those promises, and as a result, our credibility is no longer in doubt.”

Marchionne, who said as recently as April that he could stop losses in Europe within two years, will have to make do with lower sales than originally expected. The 2014 revenue target for the group, including Chrysler, Ferrari and Maserati, may be cut to 89 billion euros from the 2010 forecast of 104 billion euros, according to a Bloomberg survey of 13 analysts.

Fiat declined 0.6 percent to 4.12 euros in Milan yesterday. The stock has gained 16 percent this year, valuing the carmaker at 5.15 billion euros.

Chrysler on the other hand is investing in plants and adding thousands of employees to work additional shifts to meet demand in the U.S.

Plant Investments

The Jefferson North Assembly Plant in Detroit that makes Jeep Grand Cherokee and Dodge Durango SUVs will add 1,100 jobs and a third crew of workers in November. Chrysler’s Toledo, Ohio, complex making Jeep Wrangler SUVs also will add more than 1,100 jobs after a $1.7 billion investment to make the model that will replace the Jeep Liberty SUV.

“It’s incredible the turnaround the company has had,” Lindland said of Chrysler. “They’ve vastly improved their product line and they’re doing it with fewer people. They’re controlling costs and improving their products. Chrysler is the picture of productivity.”

To contact the reporter on this story: Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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