Chrysler Net Income Surges 22%

Strong truck sales drive results – but mask other problems.

by on Oct.30, 2013

Strong demand for the Ram pickup -- the 2014 diesel model shown here -- buoyed Chrysler's Q3 earnings.

The resurgent boom in pickup sales was good news for the Chrysler Group which saw net income surge by 22% during the third quarter, in sharp contrast to the declines posted by both of the maker’s cross-town rivals.

Chrysler earned $464 million during the July to September period, up from $381 million the year before, marking the once-bankrupt automaker’s nine consecutive quarterly profit. Revenues, meanwhile, jumped 13.5%, to $17.6 billion, on the sale of 603,000 vehicles. That was an increase of 8% from a year ago.

Tracking the Numbers!

But barely one in seven of Chrysler’s products – 82,000 in all — were sold outside North America, in sharp contrast to the results at General Motors and Ford Motor Co., who now depend on overseas markets for the majority of their demand and an increasing share of their revenues. And there are other challenges revealed by Chrysler’s latest earnings report.

“Chrysler Group’s ninth consecutive quarter of positive net income highlights our commitment to producing award-winning vehicles for consumers, such as the Jeep Grand Cherokee and the Ram 1500,” Chrysler Group LLC Chairman and CEO Sergio Marchionne said.  “We also are pleased to introduce the already award-winning Jeep Cherokee to the lineup, as it launches into the largest SUV segment in the United States.”

(Mixed results for Chrysler in latest Consumer Reports auto reliability survey. Click Here to see how various brands fared.)

Despite a brief downturn in U.S. auto sales last month, the home market has been surging more sharply than expected this year and demand has been particular strong for full-size pickups, such as the big Ram model which gained 23% year-over-year during the third quarter. Equally significant was a 5.3% jump in the average transaction price – the actual out-the-door figure after factoring in incentives and options – with the typical Ram model going for $36,724 during the period, according to data compiled by Kelley Blue Book.

Demand also jumped 30% for the big Jeep Grand Cherokee models, while buyers paid an extra 9%, at $40,175 per vehicle, for the vehicle. Both the Ram truck and Grand Cherokee SUV were recently updated, and the pickup was winner of the North American Truck of the Year last January.

(Chrysler among brands expected to do well as October sales rebound from last month’s slide. Click Here for the story.)

In its Wednesday morning earnings statement, Chrysler reaffirmed earlier guidance, indicating it expected to earn somewhere between $1.7 billion and $2.2 billion for all of 2013, with revenues expected to run between $72 billion and $75 billion.

That would be good news for the U.S. maker’s Italian partner Fiat SpA which owns a 58.5% stake in Chrysler – the rest held by the United Auto Workers Union’s retiree health care trust. Both gained their holdings following the Detroit maker’s emergence from bankruptcy in mid-2009.

But the two owners are locked in a legal battle to determine how much Fiat should pay to acquire the UAW’s remaining stock. That question has been handed to the courts in Delaware but may become mute if Chrysler goes ahead with on-again/off-again plans to stage an IPO – which CEO Marchionne reluctantly announced over the summer.

Industry analysts warn that if Fiat still hopes to complete its planned acquisition of its American partner it may have to borrow billions – which could, in turn, lead to a downgrading of its own debt.

(Chrysler finally shipping new Jeep Cherokee models to dealers after initial delay. Click Here for the full story.)

But Marchionne has justified the Euro-American partnership as a way to transform two largely regional automotive manufacturers into competitive global players.  Fiat’s current weakness in the wake of the European auto sales slide underscores his concerns.

Fiat is expected to report its own third-quarter earnings today. The Italian maker lost 482 million Euros, or $662 million, during the first half of 2013.

Meanwhile, despite a 20% increase in sales during the most recent quarter, Chrysler demonstrated its ongoing dependence on the North American market with only 80,000 of its vehicles – out of a total 603,000 sold – going abroad.

On the positive side, Chrysler appears close to winning approval to build its new Jeep Cherokee in China, according to several reports out of what is now the world’s largest automotive market. Chrysler was actually the first foreign maker to invest in what was then known as Beijing Jeep. But it lost its foothold in the Chinese market following the break-up of the ill-fated DaimlerChrysler alliance and has been rebuffed in previous efforts at making a return.

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