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January 31, 2013

Chrysler profits expected to reach $2.2B this year

Company is now a rising star among car makers

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DETROIT (AP) — In just three years, Chrysler has gone from government ward to rising star.

The No. 3 U.S. automaker made $1.7 billion last year thanks to big gains for its much-improved cars and trucks, and it's expecting profits to reach $2.2 billion this year.

It's a big improvement over 2011, when Chrysler earned $138 million. And it's even more remarkable considering that Chrysler was in bankruptcy and living on taxpayer loans just three years ago.

The improving U.S. economy is one reason for Chrysler's success. Auto sales in the U.S. — where Chrysler sells three out of every four of its vehicles — rose to a five-year high of 14.5 million last year. They could climb to 15.5 million or more this year, most industry analysts say.

But Chrysler rose even faster than average, with its U.S. sales up 21 percent versus 13 percent for the industry. That's because new or recently revamped products like the Dodge Dart small car, Ram pickup and Jeep Grand Cherokee are putting Chrysler back on buyers' shopping lists after years of quality concerns and flagging demand. Sales of the Chrysler 300 sedan nearly doubled in 2012; so did sales of the tiny Fiat 500.

Chrysler also made more on every car it sold. Customers paid an average of $29,630 for a Chrysler vehicle last year, up about $1,000 from the year before, according to auto pricing site TrueCar.com.

Revenue increased 20 percent to $65.8 billion last year. Chrysler expects higher revenue of between $72 billion and $75 billion this year.

Fueling the growth is a revived truck market that should see some upswing as home construction improves. The company's Ram pickup is a strong contender in that segment, says IHS automotive analyst Mike Wall. Sales could also get a boost this year from updated versions of popular products like the the Jeep Grand Cherokee, Fiat 500 and Jeep Liberty.

It helps that Chrysler has limited exposure to Europe, where falling sales have hurt its competitors, Wall says. Ford announced Tuesday that it expects to lose $2 billion in Europe this year on top of a $1.75 billion loss in that region in 2012.

But Chrysler's limited international sales are also a frustration for CEO Sergio Marchionne, who has led Chrysler and its majority owner, Italian automaker Fiat SpA, since Chrysler emerged from bankruptcy in 2009. Chrysler and Fiat recently signed a deal with Chinese automaker Guangzhou to build Jeeps for Chinese buyers, and Marchionne wants to start production quickly.

"I'm tired of waiting in China," he said in a conference call with analysts and media. "Jeep may be our way back into that market." Marchionne hopes to beat his goal of selling 500,000 Chrysler cars and trucks outside North America by 2014. But the company has a ways to go. Chrysler sold just 210,000 vehicles — mostly Jeeps — outside the U.S. last year.

Chrysler also gave an update on some future products. It confirmed that an Alfa Romeo car will come to the U.S. from Italy later this year, possibly with a Ferrari-designed engine. A new version of the Chrysler 200 midsize sedan is coming in 2014, and a long-awaited new minivan is due in 2015.

Marchionne says the minivan and other new products have been delayed by a lack of money. But Wall says Chrysler also needs to proceed carefully with the new minivan, since it's a vital product for the company.

"They've owned that segment," Wall says. "The last thing you want to do is make the wrong call and see a flight out of your dealerships." Chrysler spent $4 billion on capital expenditures last year, and it plans to hold that steady in 2013. Marchionne said the company is spending much more on product development than rivals, but needs to in order to improve its image after years of lackluster offerings.

"We are overspending. We understand this. But we're doing this with a very clear intent," he said.

He also said he wants Fiat to fully own Chrysler "as soon as I can afford it." The companies are inseparable now, he said, and share parts as well as executives.

"I don't see the future of Fiat and Chrysler as being separate, "Marchionne says. "I see them as one entity at some point in time." Fiat now owns 58.5 percent of Chrysler, with the rest owned by a health care trust for retired union workers. Fiat wants to buy the trust's shares, and the two sides have been fighting over their value in court.

Marchionne praised employees and promised an unspecified amount in bonuses in an email sent Wednesday to Chrysler's 63,643 active workers, many of whom remember the dark days when Chrysler was living on $12.5 billion in government loans. Nearly all of that money has now been repaid.

"There can be no more doubt that our comeback is real," he told workers. "Your phenomenal efforts have put us on a road with an endless horizon in front of us."

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