Chrysler posts $212M 3Q profit
DETROIT—Chrysler is moving closer to its first full-year profit since 2005 as customers buy more of its cars and trucks at higher prices.
It's another sign that the once-troubled carmaker is turning around. Chrysler was the most-improved brand in a recent reliability survey from Consumer Reports, moving up from the bottom of the list because of new and better products. It's also reached a new labor agreement that limits its costs. And it's raising its full-year profit forecast.
The company, now run by Italy's Fiat SpA, said its fortunes have improved because of rising demand for its new or revamped Chrysler, Dodge, Jeep and Ram cars and trucks.
The Auburn Hills, Mich.-based company reported Thursday that its net income totaled $212 million for the third quarter, compared with a year-earlier loss. It was only the second time that Chrysler has turned a quarterly profit since 2006. Vehicle sales worldwide rose 24 percent, and revenue climbed 19 percent to $13.1 billion.
Yet even with the profit, Chrysler Group LLC hasn't fully recovered from its 2009 brush with death. The company, neglected by two previous owners, nearly ran out of cash and needed a government bailout to survive bankruptcy restructuring.
"They are still in the most precarious position out of the Detroit Three, but they're making progress in a market that's really not doing that well in the first place," said Aaron Bragman, an industry analyst with industry consulting firm IHS Automotive.
Auto sales in the U.S., Chrysler's primary market, have sputtered all year at an annual rate of around 12.5 million vehicles as debt-weary Americans hold onto their vehicles longer. The sales rate is enough for Chrysler, General Motors Co. and Ford Motor Co., to make money, but it's far short of the 2005 peak of 17 million.
Chrysler hasn't made an annual profit since 2005, but it's getting closer to profitability with a mix of strong new products.
Jeep was the top brand from a U.S. automaker in Consumer Reports' latest reliability rankings, which were released Tuesday. The Chrysler brand moved to 15th place from 27th. The Jeep Grand Cherokee SUV, Chrysler 200 midsize car and Dodge Durango SUV have been among the company's recent successes.
Chrysler has raised the quality of its vehicles by revamping them in a short amount of time under Fiat's leadership, Bragman said. The company has changed manufacturing methods and now puts cars and trucks through rigorous tests.
"They've inserted whole layers of testing that never were there before," he said. "They've improved the feedback when problems do go wrong. The response time is now measured in hours rather than years."
But even with the improvements, Chrysler has to overcome an image of poor reliability. "It's going to take a couple of years of consistency," he said.
Chrysler's third-quarter profit wasn't quite big enough to erase a loss from the first half of the year. The company ended the first nine months at $42 million in the red, mainly due to a $551 million accounting charge for refinancing its government debt. Excluding the charge, the company earned $509 million during the first nine months.
Chrysler raised its earnings forecast for the full year to $600 million, excluding the charge. Previously it had forecast $200 million to $500 million. It also predicted 2011 revenue of $55 billion.
The company is getting higher prices for its cars. The average price for a Chrysler car in the U.S. rose nearly 5 percent to $30,387 in the third quarter, according to the Edmunds.com automotive website. Chrysler's share of the U.S. market rose, too.
Chrysler also got good news on the labor front this week. A new four-year labor contract that covers 23,000 U.S. factory workers will hold down the company's costs. It will give workers profit-sharing checks and other bonuses instead of annual raises.
During the quarter, Chrysler also helped its bottom line by cutting borrowing costs through refinancing of $7.5 billion in high-interest loans from the U.S. and Canadian governments. The company paid $282 million in interest last quarter, down $34 million from a year earlier.
Fiat controls Chrysler with a 53.3 percent stake in the company. Under a 2009 deal with the U.S. government, Fiat got a 20 percent stake after Chrysler exited bankruptcy protection. Fiat gradually raised its stake and gained a majority share in July, when it paid the U.S. Treasury for its remaining shares.
Fiat expects to raise its ownership of Chrysler to 58.3 percent by the end of the year, when it introduces a 40 mpg car for the U.S. market. The high mileage car was also part of its deal with the government. A union trust fund that pays retiree health care costs owns the rest of the shares.
Chrysler's earnings also helped its Italian owners. Fiat released third-quarter earnings on Thursday, posting a 67 percent profit increase to 112 million euros ($157 million) thanks to demand for Chrysler vehicles in North America.
Chrysler may return to the public stock exchanges sometime next year, with the trust fund raising cash by selling at least part of its stake.