Chrysler Gaining Momentum, Posts Strong Q1 Results

Chrysler posted a $473 million profit in first-quarter 2012, its best quarter since emerging from bankruptcy, but its top executive says better days are coming.

“We are incredibly satisfied with the performance,” CEO Sergio Marchionne says in a call to discuss earning results with financial analysts and media. “It’s fair to say Chrysler is firing on all cylinders.

“(But) 2012 is certainly the weakest of the product launch years we have,” he adds. “The big year for all of us is 2013. So we expect to continue to perform as well as we’ve done in Q1 through the remainder of the year, (and) I think it sets an incredible foundation for 2013.”

Some analysts predict the 14.5 million seasonally adjusted light-vehicle sales rate posted in the U.S. in Q1 won’t hold up through the remainder of the year. But Marchionne appears confident profitability can be sustained even if the market’s pace slows.

“Everybody is fighting competitively, but nobody’s done anything stupid,” he says. “We’re all dealing with increased demands on our manufacturing facilities. Most of our plants are being taxed to the max.

“As long as nobody does anything stupid and starts building new capacity in the U.S. without exploring fully utilizing the existing industrial infrastructure, I think we’ll be fine. So far, everyone is holding onto a very disciplined approach to market.”

Marchionne says Chrysler’s lack of a captive finance arm isn’t putting it at a competitive disadvantage, adding he believes the auto maker may be better off without one.

“To the extent you comingle industrial decisions with financial decisions…you end up driving the industrial machine in the wrong direction, because you’ve got (access to) cheap financing,” he says. “That possibility will never happen with Chrysler. We’ll be forced to be disciplined. The industrial side cannot get polluted.”

Alluding to the industry’s efforts to slim down capacity and wean itself from sales incentives, Marchionne says, “If you’re trying to go straight and stop drinking, don’t hang around the bar.”

Chrysler told Ally Financial earlier this week it planned to sever a deal through which Ally provides wholesale financing to Chrysler’s dealer network and loans to customers in the U.S. and Canada.

That business will be put up for bid with other financial-service providers, including Ally, and Marchionne says he expects “a significant improvement in service levels” as a result. Chrysler’s contract with Ally expires April 30, 2013.

The first quarter has the auto maker well on its way toward hitting its full-year goals of a net profit of $1.5 billion, operating profit of at least $3.0 billion and free cash flow of $1.0 billion or more.

It expects to ship 2.3 million-2.4 million vehicles this year, while piling up revenue of $65 billion.

Net income quadrupled in Q1 from $116 million year-ago. Revenue rose to $16.4 billion, from $13.1 billion in like-2011.

Chrysler ended the quarter with $11.3 billion in cash, up from $9.6 billion at the end of last year and $9.9 billion in first-quarter 2011.

Worldwide vehicle shipments jumped 25% to 607,000 units, compared with 485,000 year-ago, while actual sales rose 33% to 523,000 cars and trucks, most of that a result of a 40% gain in U.S. deliveries. However, sales outside North America increased 80% to 67,000 units, including 18,000 manufactured by Chrysler but sold through Fiat.

Chrysler also became less reliant on truck sales during the quarter, with cars making up 30.2% of its mix vs. 22.2% year-ago. Incentives averaged $100 less in the quarter than in like-2011, at $3,200 per unit.

Meanwhile, parent Fiat reported earnings of €379 million ($501 million) in the quarter, up from €37 million ($49 million) year-ago. Excluding Chrysler, revenues totaled €8.7 billion ($11.5 billion), down 5.7%.

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