Monday, July 30, 2012
DETROIT (AP) — Chrysler's almost total reliance on North America used to be a huge weakness, one that sent the company into bankruptcy protection.
Now it's a major strength. The region is generating profits for the company while losses in Europe and slowing sales in South America and China are drains on other carmakers.
Chrysler, which sells almost 90 percent of its cars and trucks in the U.S. and Canada, made a $436 million profit in the second quarter. It was a huge turnaround from a year earlier, when the company lost $370 million, mainly because it refinanced government bailout loans.
The automaker, now majority owned by Italy's Fiat SpA, also backed an earlier profit forecast of about $1.5 billion for the year. Such a performance would have been unthinkable three years ago, when Chrysler nearly ran out of cash and needed a government bailout to survive.
Chrysler has emerged from bankruptcy protection with far lower costs, and it's saved money by using Fiat parts and expertise to engineer new models. Since exiting Chapter 11, it has rolled out a revamped Jeep Grand Cherokee, a highly profitable vehicle which saw sales rise almost 40 percent in the first half of the year. The company also is making money on minivans and Ram pickups, said Joe Phillippi, a former Wall Street analyst who is now president of AutoTrends Consulting in Short Hills, N.J.
"The pickup market is picking up, and that's helping them a lot," he said.
Chrysler also is propping up Fiat. Like other automakers, the Italian company is struggling with falling sales as Europeans pull back on car buying. Last week, Ford reported that its second-quarter net income fell 57 percent, largely because of a loss in Europe.
Chrysler's revenue rose a healthy 23 percent to $16.8 billion in the second quarter. It also paid less in interest last quarter than a year earlier, saving $50 million with the refinancing of its government loans.
The company's U.S. sales rose 24 percent in the quarter to 436,000, its best sales quarter since it left bankruptcy protection. Its share of the U.S. market went from 10.1 percent last year to 11.5 percent. In Canada, sales rose 7 percent in the first half of the year to just over 130,000.
There may be some trouble ahead, though. Chrysler, which made $909 million in the first half of the year, is predicting that it will make less than $600 million in the second half as the global and U.S. economies continue to slow. Also, the company's second-quarter profit was almost 8 percent lower than the first quarter.
Chrysler is giving a conservative full-year profit outlook because it has big manufacturing and advertising costs from launching the new Dodge Dart compact car and a revamped Ram pickup truck, Phillippi said. But CEO Sergio Marchionne also is being cautious because of a slowing U.S. economy, he said.
"Sergio's view is under-promise and over-deliver," Phillippi said.
The U.S. economy grew at an annual rate of just 1.5 percent from April through June. That means there's not enough growth to cut into the nation's high unemployment rate of 8.2 percent. Few expect economic growth to accelerate in the second half of the year as Europe's financial woes and a U.S. budget crisis restrain businesses and consumers.
Still, many auto analysts say that sales should remain strong through the year due to pent-up demand. The average age of a vehicle in the U.S. is nearly 11 years, and people simply must replace worn-out cars and trucks.
Chrysler should benefit from increased sales of the new Dart and the Ram in the second half of the year, Phillippi said. The Dart, in particular, gives the company a strong entry in the compact car segment, where it hasn't had a competitive product for almost two decades.