Chrysler Making MoneyBy Michelle Krebs May 2, 2011
Chrysler Group LLC reported its first quarterly net profit since the company emerged from Chapter 11 bankruptcy two years ago and became part of Italian automaker Fiat. "Chrysler Group's improved sales and financial performance in the first quarter show that our rejuvenated product lineup is gaining momentum in the marketplace and resonating with customers," said Chrysler/Fiat CEO Sergio Marchionne (left) in a statement Monday.
Chrysler reported first-quarter net income of $116 million, compared with a net loss of $197 million a year earlier. It marked Chryslers first quarterly profit since its June 2009 bankruptcy; before that, Chrysler had last earned a profit in the second quarter of 2006 when it was owned by German automaker Daimler. Chrysler, however, has reported a string of operating profits of late.
Revenue rose 35 percent to $13.1 billion, largely on the strength of the Jeep Grand Cherokee and other revamped models. Chryslers operating profit totaled $477 million, compared with $143 million a year earlier. Global vehicle sales rose 18 percent to 394,000 units sold in the quarter. For the year, Chrysler said it expects report net income between $200 million and $500 million on $55 billion in revenues.
Turning It Around
In the U.S., Chrysler vehicle sales soared 22.5 percent in the 2011 first quarter compared with the year-ago first quarter to 286,950 vehicles, helping it gain a tenth of a market share, according to Edmunds.coms calculations. Just as important, Chrysler reduced incentives by nearly 5 percent from the year-ago quarter which has improved Average Transaction Prices to $29,742 from $29,432 a vehicle. And Chrysler has gotten back into the leasing business, which it was completely out of during its bankruptcy. Of its total sales, 16.3 percent were leases, compared with 9.4 percent a year ago. And Chrysler has reduced incentives on leases by nearly 22 percent, further boosting its bottomline.
Consumer consideration of Chrysler models has vastly improved, based on visitors on Edmunds.com. The Super Bowl ad using Detroit rapper Eminems music and bearing the tagline Imported from Detroit triggered a sharp rise in consideration, particularly for the newly introduced midsize Chrysler 200 sedan, which replaced the Sebring. Of all Edmunds.com shoppers, 11.7 percent visited Chrysler models, up from 8.8 percent in the 2010 first quarter.
"Chrysler has certainly made progress from last years first quarter, noted Edmunds.com Analyst Ivan Drury. Sales are up 22.5 percent, and brand awareness is up. Many redesigned vehicles are in Chrysler showrooms and incentives are down. However, Drury pointed out that Chrysler still depends heavily on the sale of very large cars and trucks. This could hinder its progress in the upcoming months as fuel costs escalate," he said.
In addition to posting its financial results Monday, Chrysler also provided details of its refinancing of $7.5 billion worth of loans owed to the U.S. and Canadian governments following its 2009 bankruptcy and bailout. Chrysler said it would borrow $3.5 billion in a senior secured six-year term loan and $2.5 billion in secured bonds with eight- and 10-year maturities. Chrysler will use the term loan, bonds and $1.27 billion in cash from Fiat to refinance its government loans. Marchionne told media and analysts in a conference call Monday that the refinancing should be wrapped up by the end of the second quarter. The refinancing will slash Chryslers interest payments which have prevented it from reporting a net profit in previous quarters and contributed to 2010s full-year loss of $625 million.
As a result of its cash investment, Fiat will increase its stake from the current 30 percent to 51 percent of Chrysler. The United States and Canada currently own a combined 10.8 percent of the automaker. Marchionne has said the automaker needs a couple quarters of net income before doing an initial public offering, likely to occur in 2012. The refinancing detailed Monday will enhance the attractiveness of Chryslers stock when it does return to public ownership. So too should Chryslers improving cash situation. At the end of the first quarter, Chrysler had $9.9 billion in cash, up from $7.3 billion at the end of December.