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Mon May 2, 2011
Chrysler makes money for the first time since 2006
Chrysler posted a profit in the first quarter of this year: $116-million.
It's not a lot of money. But any amount of profit is a morale-booster when a company has been through the ordeal of bankruptcy.
The profit compares to a loss in the first three months of 2010 of $197-million.
Chrysler has been steadily reducing its losses every quarter since it went through bankruptcy in 2009.
But this is the first clear indication that Chrysler and Fiat CEO Sergio Marchionne's turnaround plan for Chrysler is getting the company back into reasonable financial shape.
The improvement is largely due to increased sales - and not just increased fleet sales, which are less profitable - but sales to individual customers.
Customers have been responding to new launches, like the Jeep Grand Cherokee, and to refreshed vehicles with improved interiors and better marketing, like the Chrysler 200, which got a big boost from a Superbowl advertisement featuring rap artist Eminem.
But Marchionne says Chrysler is having trouble meeting the increased demand for its cars.
"We need to fill the pipeline to sell them," he said during a conference call with analysts and media. "We got less than two Chrysler 200’s per dealer at the end of the first quarter. That’s inadequate to try and get traction."
Chrysler plans to pay back its $5.8 billion in federal loans in June, using cash from Fiat and the sale of debt securities, along with a refinance of the remainder of the loans with private loans from banks.
Paying that much debt will create an accounting problem, resulting in a charge of $500-million on Chrysler's books for 2011.
But the refinancing will lift the burden of the U.S. Treasury's 12% interest rate from Chrysler's shoulders. The refinance will save Chrysler $100-million this year. And it will allow Fiat to pick up another share of Chrysler stock, bringing its ownership to 46%.
Fiat can bring its stake to 51% by introducing a vehicle in the U.S. that gets 40 miles per gallon. Marchionne says that will happen by the end of the year.
The U.S. Treasury owns 8.6% of Chrysler stock. An initial public offering of that stock could be made in 2011 but more likely, will be made in 2012.