Chrysler Plants Running Hard to Meet Demand, CEO Says

Chrysler is “running machines pretty hard right now” as it moves to 3-shift operations at some plants and looks for ways to clear up bottlenecks at others to meet growing demand for its cars and trucks, CEO Sergio Marchionne says.

“I think it’s fair to say we’ve had some industrial inefficiencies, given the fact we are running the machines as hard as we are,” Marchionne says on a conference call with analysts and media to discuss the auto maker’s second-quarter earnings. “But I think that’s going to stabilize as we make our way through 2012.”

Chrysler yesterday reported an estimated net profit of in $436 million in Q2, compared with a loss of $370 million year-ago. Revenues totaled $16.8 billion, up 23% from $13.7 billion in like-2011.

Separately, Chrysler parent Fiat today reports a €358 million ($441 million) net profit in the quarter, a steep plunge from year-ago’s €1.24 billion ($1.53 billion). That result comes despite a huge increase in net revenues to €21.5 billion ($26.4 billion)), from €13.2 billion ($16.3 billion) in like-2011, and a 363% gain in vehicle shipments to 1.1 million units, both largely attributable to the North American market and Chrysler.

Excluding Chrysler, Fiat posted a trading profit of €144 million ($177 million) in the second quarter, down from €375 million ($462 million) year-ago, reflecting lower volumes mainly in Europe, but also Latin America.

Marchionne says Fiat will not tap into Chrysler’s cash reserves.

Chrysler says its vehicle-capacity utilization should total 103% for all of 2012, based on two, 8-hour shifts at all plants. But it expects to operate at a 73% capacity-utilization rate if potential 3-shift operation is factored in at every plant except its Saltillo, Mexico, operation.

That means there’s room to cover volume growth to 2.4 million vehicles (including international sales) projected for 2014 under Chrysler’s original recovery game plan rolled out in late 2009.

A third crew already is under way at the Belvidere, IL, Dodge Dart facility and in place at the Windsor, ON, Canada, minivan factory. A third shift is  planned at the Jefferson North (Detroit) Jeep facility for later this year, while the Jeep Toledo plant already is operating two 10-hour shifts, Marchionne notes.

Adding three shifts elsewhere if needed is a possibility as volume growth continues, the CEO indicates.

“I think you’re going to see a dramatic improvement in our industrial utilization rate as we go forward,” he says. “We’re working to remove all (the) bottlenecks, so it is going to get better.

“But it is very difficult for me (right now) to turn off a machine when we’re looking at such strong demand as we’re looking at,” he adds. “We’re trying to satisfy demand without (affecting) quality and cost.”

Marchionne says the auto maker is on track to meeting its 2014 volume and financial goals and notes it is well ahead of the game in terms of positive cash flow, meaning product program funding hasn’t drawn as much from Chrysler’s coffers as expected.

“We were truly conservative in estimating our cash drain as we launched our product portfolio,” he says. “Strangely enough, I think we’ve learned to walk and chew gum at the same time. We’ve been able to maintain a strong market presence, generate profits…while investing an inordinate amount of money in fixing the portfolio and getting it ready for the next decade.”

The new product launches next year include revamped Liberty and heavy-duty Ram models due midyear.

Meanwhile, Marchionne declines to provide a volume outlook for the new Dart compact sedan, which is just hitting dealer showrooms now.

“The reception so far has been outstanding; I don’t want to jinx it,” he says, adding the Dart won’t have a big impact on July U.S. sales to be reported tomorrow. Overall, Chrysler expects a double-digit gain for the month, and Marchionne says volume in Canada also will be strong.

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