Chrysler posts 1st annual net profit since 1997
DETROIT (AP) — Higher sales of Jeeps and other new vehicles propelled Chrysler to its first annual net income since 1997, capping a pivotal turnaround that many thought would never happen.
The U.S. automaker, now privately held and majority owned by Italy's Fiat SpA, earned $183 million last year, reversing a $652 million loss in 2010, its first full year out of bankruptcy protection.
Just three years ago Chrysler was close to running out of cash and heading for the auction house. But a government-funded bankruptcy cut debt and expenses, and Chrysler spent last year rolling out 16 new or revamped models to boost sales. Now the company is expanding into small cars and adding jobs.
Chrysler expects an even better 2012, despite a sluggish and uncertain economy. The company, which sells most of its vehicles in the U.S., predicts it will make about $1.5 billion this year and increase revenue 18 percent.
"We're looking at 2012 with some degree of optimism," CEO Sergio Marchionne said Wednesday. "It's not going to be a walk in the park ... but I think we've got all the elements in place."
He said that employees, both hourly and salaried, would get bonuses based on the last year's profit, but he wouldn't reveal the amounts.
Marchionne cautioned that costs will rise in 2012. It will spend billions to promote the new Dodge Dart compact car and to develop a slew of new cars and trucks that will hit the market next year.
Chrysler spent much of 2010 designing new vehicles and trying to spruce up an archaic lineup that wasn't selling well.
Now those vehicles are in showrooms, and they've sold far better than expected, especially the Jeep Grand Cherokee SUV. The company's global sales climbed 22 percent to 1.86 million last year. U.S. sales growth was even faster, up 26 percent.
As a result, the company brought in more money. Revenue totaled $55 billion last year, 31 percent higher than in 2010. The added cash, along with relatively low expenses after bankruptcy, and savings from combining technology and engineering with Fiat, helped Chrysler turn itself around.
Last year's profit would have been higher — $734 million — if the company hadn't refinanced $7.6 billion in loans granted by the U.S. and Canadian governments. In the second quarter, the company took a $551 million accounting loss because of the refinancing.
But the refinancing in May at far lower rates helped save Chrysler about $100 million in interest expenses last year, and is expected to save $300 million during a full year.
Chrysler's profit has created a role reversal of sorts. When the U.S. government picked Marchionne to take control of Chrysler after the bankruptcy, Fiat was seen as a savior. Now Fiat, which owns 58.5 percent of Chrysler, is struggling and may need the U.S. company's help to survive economic problems in Europe.
Fiat reported a $1.71 billion net profit for last year on Wednesday, but Marchionne said all of that came from Chrysler. During a conference call with reporters and analysts, he was frustrated with Fiat's performance and seemed to issue a warning to his managers in Italy.
"Being European doesn't entitle them to be economically inefficient," Marchionne said.
Chrysler announced a number of new vehicles for this year and next.
It will roll out a revamped Ram 1500 pickup later his year. New versions of the Viper sports car and an all-electric Fiat 500 are also coming later in 2012.
In 2013, the company will concentrate on being more competitive in small and midsize cars. Marchionne said the company has a "product offensive" coming. "The real story is going to unfold in 2013," he said.
Last year, Chrysler cut its net debt by nearly half to $2.9 billion. The company's total cash at the end of 2011 was $9.6 billion. But its pension plan had $6.5 billion fewer assets than total liabilities. Chrysler doesn't expect to make large payments into the plan until 2013 at the earliest.
For the fourth quarter, Chrysler earned $225 million, compared with a loss of $199 million.
Chrysler still faces challenges this year, especially from strong competition in its main market, the U.S. Although its U.S. market share rose 1.3 percentage points to 10.7 percent, it came during a year in which Honda and Toyota dealers ran short of models because the March earthquake and Tsunami in Japan. The disasters hampered their factories' output.
Also, Chrysler's prime U.S. competitors, Ford Motor Co. and General Motors Co., are rolling out many new products this year, as are Korean automakers Hyundai Motor Co. and Kia Motors.
"We're taking nobody for granted," Marchionne said.
Still, U.S. auto sales are expected to rise by about a million this year, to near 14 million, and Chrysler is expected to get a share of the increase.
President Barack Obama has been touting Chrysler's turnaround in recent appearances ahead of the November presidential election. Obama cast the deciding vote to save Chrysler and authorized much of the $12.5 billion in government funding that bailed out the company. Of the original bailout to Chrysler and its financial arm, the government said it was repaid all but $1.3 billion.
Chrysler now employs 57,200 people, 9,400 more than it did when the company left bankruptcy protection in 2009. Marchionne confirmed Wednesday that Chrysler will add a third shift at its plant in Belvidere, Ill., which is making the Dart, Chrysler's first competitive compact car in more than 15 years. The company is expected to add around 1,600 jobs.
The Dart is important to Chrysler because it gives the company a product to attract first-time buyers who generally stay with a brand if they like their first cars.
Chrysler's turnaround last year was largely on the back of the Jeep brand, which saw sales rise 44 percent for the year. The revamped Grand Cherokee was a hit. Its sales rose 51 percent to nearly 128,000, almost one-third of Jeep's total.Chrysler's top-selling vehicle last year was as the Ram pickup at nearly 245,000. Both vehicles carry high sticker prices and bring big profits to the company. The starting price of a Grand Cherokee, for instance, is $27,490, but the SUV can run into the $40,000s when options are added.
The full-year profit sets the stage for Chrysler to return to the public stock markets. The company's other owner, a trust that pays retiree health care bills for Chrysler's union retirees, wants to sell its stake to raise money for the payments. Marchionne says a stock offering won't happen until at least next year.