Chrysler loses $197M in 1st-qtr but cash balance grows to $7.4B, says turnaround is working

Chrysler posts $197M loss but cash balance grows

DETROIT — Chrysler Group LLC says cost cuts, manufacturing efficiency and disciplined pricing helped the Italian-run automaker slash its net loss to $197 million in the first quarter.

The red ink was far less than the staggering $3.8 billion that Chrysler lost from the time it left bankruptcy protection June 10 through the end of last year, and the company says it is a sign that its turnaround plans are starting to work.

Chrysler, now run by Italy’s Fiat Group SpA, said it posted a $143 million operating profit from selling cars and trucks, before interest and taxes.

The company issued its first financial results on Wednesday since 2007.

Moreover, Chrysler said it generated $1.5 billion in cash during the quarter, raising its reserves to $7.4 billion and reducing the likelihood that it will need more government aid. And the company predicted its operations would break even or be slightly profitable this year.

“This positive operating result in the first quarter is a concrete indication to our customers, dealers and suppliers that the 2010 targets we have set for ourselves are achievable,” CEO Sergio Marchionne, who also heads Fiat, said in a statement. “We are also generating cash to finance the investments being made in our product portfolio and brand repositioning.”

First-quarter revenue was $9.7 billion, up 3 percent from the fourth quarter, the company said. Revenue for the post-bankruptcy period of last year was $17.7 billion.

Chrysler said its operating loss for the last half of 2009 was $895 million.

The company also said the huge net loss for the second half of the year included a noncash charge of $2 billion as the company moved blue-collar retiree health care liabilities off its books to a trust fund run by the United Auto Workers union.

Chrysler last reported earnings in August 2007, just after it became a private company when it was sold by Daimler AG to private-equity firm Cerberus Capital Management. At that time, it reported a second-quarter profit of $549 million, although it said it would have lost money without a $946 million gain because it didn’t book scheduled depreciation and amortization that quarter.

Cerberus didn’t invest the cash needed to weather the worst auto sales decline in more than 25 years, and as a result, Chrysler came close to running out of money at the end of 2008. The U.S. government stepped in, authorizing $15.5 billion in aid and appointing Marchionne to run the company after it emerged from Chapter 11. Chrysler said it has not drawn $2.4 billion of U.S. and Canadian government aid.

In Turin, Marchionne told reporters that Chrysler would repay the government by 2014, the end of Chrysler’s five-year plan. Marchionne was presenting Fiat’s new plan, which includes the separation of its auto and industrial businesses into two distinct companies with the goal of creating a global car company — including the alliance with Chrysler — capable of producing 6 million cars annually.

Marchionne said the improved performance came from discipline in pricing its vehicles, a larger proportion of its sales coming from the profitable Ram pickup, and cost efficiency mainly from adopting Fiat’s manufacturing system.

The company said its U.S. market share grew from 8.1 percent at the end of last year to 9.1 percent in the first quarter. Sales worldwide grew 5 percent over the fourth quarter of 2009 to 334,000 vehicles.

But there were also were signs that Chrysler could have a rough go in the future, especially in the U.S., its key home market. The company’s U.S. sales grew 5 percent for the quarter, but lagged behind other automakers as the whole market grew 15.5 percent. About 40 percent of Chrysler’s sales for the period were to rental car companies and other fleet buyers, which generally yield lower profits than retail sales to individuals.

Dealers also reported slow sales due to an aging product lineup. But Chrysler said that by the end of the year it plans to redo the slow-selling Chrysler Sebring midsize sedan and the Dodge Charger muscle car, as well as unveil a new Jeep Grand Cherokee sport utility vehicle and a new Chrysler 300 large car. Also coming in December is the Fiat 500 minicar.

Some industry analysts were skeptical of Chrysler’s performance gains.

Max Warburton, an industry analyst with Sanford C. Bernstein in England, wrote in a note to investors last week that he thinks Chrysler’s accounting profits are “almost irrelevant” and not comparable to other automakers.

“Positive cash flow is being driven by dealer restocking and stretching payables,” he wrote in anticipation of Chrysler’s earnings release. “We remain unconvinced Chrysler will survive in its current form despite Marchionne’s blood, sweat and tears.”

While Marchionne’s cost cuts have been impressive, Warburton wrote that the company’s capital investments have been minimal, and it has been arguing with parts suppliers about payments for machinery to build future products.

But Marchionne, during a presentation on Fiat’s five-year financial plans in Turin, Italy, took a swipe at analyst reports that have taken a dim view of Chrysler’s operating profits. He compared the writings to the “Boulevard press,” meaning tabloid journalism.

“As we all know, in business it is ultimately only facts that prevail,” Marchionne said.

Chrysler’s last full-year profit was in 2005, when it made $1.8 billion. The last time Chrysler reported a quarterly profit was in the second quarter of 2006, when it earned $65 million.

Fiat on Wednesday reported a $34 million first-quarter loss and forecast that its auto business will be hurt this year by the elimination of cash-for-clunker programs in Europe.

Marchionne said during the presentation that he’s committed to launching the Alfa Romeo brand in the U.S. in 2012 with the Giulia midsize sedan, even though he’s disappointed with Alfa’s growth in recent years.

The Giulia “will pioneer Alfa’s return to the market,” he said. Alfa models were last sold in the U.S. in the 1980s.

Fiat will also bring the just-launched Giulietta, a four-door compact hatchback, to the U.S. after it is refreshed in 2014.

Marchionne acknowledged disappointment that the Fiat and Lancia brands have failed to meet his earlier targets of selling 300,000 a year by 2010. Lancia is virtually unknown outside of Italy, and Alfa Romeo’s planned expansion was hampered by Fiat’s difficulties in finding a partner in China and delays in relaunching the brand in the United States.

“Each now account for 5 percent of total sales. Clearly, they cannot survive as independent brands with such low volumes,” Marchionne said. “All of these things we plan to remedy.”

Barry reported from Turin, Italy. AP Auto Writer Dee-Ann Durbin in Detroit contributed to this report.