Chrysler narrows second-quarter loss
Tuesday, August 10, 2010
Any quarter in which Chrysler is able to narrow its losses must be counted as a victory for the smallest and most beleaguered of Detroit's Big Three, and that's what the company was able to report on Monday, a little more than one year after emerging from a government-sponsored bankruptcy.
Chrysler has sought nothing if not stability after enduring two years of chaos: a freefall in vehicle sales, near liquidation and a change in ownership, as the U.S. government and Italian automaker Fiat took big stakes in the company. On Monday, Chrysler chief executive Sergio Marchionne -- also head of Fiat, which owns 20 percent of Chrysler and has management control -- said the company's health is improving but it's not well yet.
"The second-quarter operating profit confirms that Chrysler Group is on track to achieve its goals, yet an extraordinary amount of work still lies ahead," Marchionne said, adding that "2010 is seen as a year of transition and stabilization."
Chrysler still lost money in the second quarter of this year -- $172 million -- but that was less than in the first quarter, when the company lost $197 million. Even though Chrysler's retail sales for the first half of 2010 are down 21 percent compared with 2009, which was a terrible auto sales year, the company sold more than 100,000 vehicles in one month (May) for the first time in more than two years and managed to show a 5 percent gain in July sales compared with July 2009. Chrysler also increased its U.S. market share from 9.1 percent in the first quarter of this year to 9.4 percent in the just-concluded second quarter.
"I think Chrysler has to succeed by exploiting niches that the other automakers are overlooking," said Edmunds.com chief executive Jeremy Anwyl. "They are duking it out with all brands, not just GM and Ford. They will not be in the top tier, so they need to create distinctive product that appeals to the gaps in the marketplace."
New and compelling product means everything in the auto industry, and Chrysler has lacked that.
Even as the company teetered on the edge of liquidation, it managed to sell trucks, especially its popular Dodge Ram. But what became clear through the recession years of 2008 and 2009 was that Chrysler was no longer able to build sedans and coupes that Americans wanted to buy, as sales of the company's dated-looking vehicles plummeted by double digits each month. An example of marketplace tone-deafness came in February when Chrysler launched a fuchsia-colored Dodge Challenger muscle car.
In recent months, Chrysler has enjoyed sales success from its 2011 Jeep Grand Cherokee, the first new vehicle rolled out under Fiat control.
It may take more than Jeep to save Chrysler. The company's long-term survival hinges on the first of several cars headed over from Italy: the Fiat 500 mini-car.
The 500 -- about the size of a Mini Cooper -- is a high-mileage city car and the first of other Fiat products coming to the United States, possibly under the Chrysler badge. The Fiat 500 won European car of the year in 2008. The Fiat-Chrysler tie-up will bring as many as seven new Fiat models from Italy to the United States, according to some reports.
Chrysler is "going to need to take risks that other companies aren't, so their future may still be tumultuous," Anwyl said. "Swinging for the fences means you have some misses."
In other promising news for the company, Marchionne said Monday that he is confident Chrysler will exceed its guidance for the remainder of this year and that he expects an initial public offering sometime next year, in order to pay back the remaining $11.6 billion of a $15.5 billion government bailout. Chrysler will closely watch General Motors' planned initial public offering.
At the same time, much of Chrysler's revenue is coming from fleet and government sales, which are far less profitable than retail sales. And Chrysler is still paying consumers more than the industry average in incentives to buy its vehicles, according to Edmunds.com.