Chrysler breaks even for September
Despite terrible sales, the troubled U.S. automaker ended its first post-bankruptcy quarter with more cash than it had at the start of it.
NEW YORK (CNNMoney.com) -- Chrysler Group broke even in September and ended its first post-bankruptcy quarter with more cash on hand than it had at the beginning of the period, the company's new boss said Wednesday.
Sergio Marchionne, the head of the Fiat Group, made the announcement at the beginning of a full-day presentation in Detroit about the Italian automaker's plans to turnaround Chrysler. Marchionne became the new Chrysler CEO when Fiat took a controlling stake in the company in June.
Chrysler is not publicly traded (although Fiat (FIATY) is) and this is the first financial results of any kind that the company has released since filing for bankruptcy.
Marchionne said Chrysler had $5.7 billion on hand at the end of September, up from $4 billion at the end of June. He did not detail where the increase in cash came from.
The comments come two days after rival Ford Motor Co. (F, Fortune 500) reported a nearly $1 billion profit in the third quarter, bucking expectations of another loss. But Ford sales have been much stronger than those at Chrysler.
Chrysler emerged from bankruptcy on June 10. Fiat holds a 20% stake in the company, and that is due to eventually rise to a 35% stake. U.S. taxpayers own an 8% stake, while trust funds set up to pay for Chrysler retirees' health care coverage control 55% of the stock.
Marchionne said financial targets for Chrysler are being met, despite weak sales. He also said the new product line coming from Fiat will make a significant change in the offerings U.S. customers will see in Chrysler, Dodge and Jeep showrooms. He expects 75% of the product line will be changed within the next 14 months.
"That's the plan. It's comprehensive. It's ambitious," Marchionne said.
Chrysler's chief financial officer Richard Palmer said the company should fall somewhere between break-even and a profit of $500 million (before interest, taxes depreciation and amortization) in the just more than six months from the end of its bankruptcy to the end of the year.
The automaker is even more confident about profits going forward, according to Palmer, due to a rebound in industrywide sales, improved U.S. market share and better access to overseas markets using Fiat's dealership networks in Europe and South America. It sees as much as $3 billion net income by 2014. That would allow it to repay loans it owes to the Treasury Department by that year.
But the sales will have to show significant improvement from 2008 for the profits to return. Palmer said Chrysler will need to ship about 1.65 million vehicles worldwide to break even. Shipments this year will end up being close to 1 million units. Chrysler also expects to eventually reach U.S. market share of 13%, up from only 9% that it has achieved year-to-date this year.
The company, with its large dependence on pickups, minivans and SUVs, got the least help of any major automaker from the government's Cash for Clunkers program, which sparked a four-week spike in industrywide sales from late July through late August.
Chrysler's U.S. sales plunged 23% during the third quarter (and 42% in September alone) compared to a year earlier, far worse than the 10% decline in industrywide U.S. sales. In October, Chrysler's sales fell 30% on a year-over-year basis, even as Ford and General Motors reported sales increases.
Jeremy Anwyl, CEO of auto industry research site Edmunds.com, said Chrysler's break-even performance in September is partly due to the one-time windfall generated by dealers who have been rebuilding their inventory after shortages in the late summer.
While reported auto sales reflect purchases by consumers, the automakers actually book revenue when cars are sold first to dealers, not to the final customer.
Nonetheless, Chrysler said that its relationship with Fiat will allow it to cut costs dramatically. Chrysler head of purchasing Daniel Knott said that new purchase systems and the use of common parts with Fiat will allow Chrysler to save about $3 billion in vehicle parts and another $400 million in "indirect" purchases (stuff that doesn't go into a car or truck) by 2014.
Anwyl said that Chrysler "deserves credit for being laser-focused on cost-cutting."
Managers from Fiat and Chrysler also discussed some changes to Chrysler's lineup of vehicles that are planned as part of the turnaround effort.
Chrysler will stop making the Viper, a niche muscle car, next summer, although it plans to bring it back in 2012 with new engineering help from Fiat, which owns a majority of the Ferrari brand.
The Viper is made at Chrysler's Conner Avenue Assembly Plant in Detroit, which has only 100 employees. The company looked at possibly selling the product and the plant during the bankruptcy but held onto it instead.
The Jeep Patriot and Compass will go away in 2012 and be replaced by Fiat-based products in 2013.
Chrysler also said it will shift more towards smaller, more fuel efficient engines in the coming years as it plans to have smaller cars Fiat now sells in Europe available in the U.S.
The company projected that vehicles with 8-cylinder engines will fall to 11% of its sales in 2014, down from 18% next year, and that cars and trucks with V-6 engines will decline to 37% from 54% over the same period.
Meanwhile, Chrysler expects that sales of autos with 4-cylinder engines will more than double to 38% from only 17% next year.
Along those lines, Chrysler unveiled plans to make the Fiat 500 subcompact car, a hot seller in Europe, available in the U.S. by the end of next year.
The Fiat 500 will be sold in sold separate "salons" inside select Chrysler/Dodge/Jeep dealerships in metro areas. The car will also have a dedicated sales staff.
"Saving on fuel never looked so good," said Peter Grady, Chrysler's vice president of network development.
Chrysler also said it plans to invest over $500 million in its retail network over the next five years, with more than $120 million of that taking place next year.
The company said that a dedicated team of 150 people at Chrysler will be committed to improving the network, with the goal of improving sales per dealership from 342 vehicles per year to 785 in five years.
Chrysler will also implement new regional dealership set-ups in which a main dealership will have separate "satellite" locations for things like service and parts. They could also have smaller satellite sales boutiques that could cater to individual brands.
The company added that it plans to cater more to small business owners and contractors as well with the new Ram truck brand.