Marchionne: ‘Let the Machine Run’

Chrysler CEO Sergio Marchionne is conflicted about the auto maker’s growth prospects.

New-vehicle inventory is “adequate,” he tells journalists and industry analysts today during a conference call to discuss Chrysler’s first-quarter net income of $116 million. But with his next breath, Marchionne expresses frustration.

“We still don’t have enough product on the ground in some of our key (lines), such as the 300 and 200,” he says. “We have less than two Chrysler 200s per dealer as of the end of the first quarter. That’s inadequate to try and get traction.”

The auto maker reports April inventory Tuesday, but March stock numbers show a company-wide days’ supply of 67. The Chrysler 200 midsize car and 300 fullsize sedan stood at 57 and 56, respectively, according to Ward’s data. The industry benchmark is 80.

The revamped 200 and all-new 300 are among 16 products Chrysler has brought to market in the last 12 months as the auto maker seeks to gain momentum for a dramatic shift to vehicles that feature technology from alliance-partner Fiat.

By 2014, Fiat platforms will account for some 56% of the auto maker’s worldwide car volume. The transition will be heralded with the homologation before year-end of a Dodge-brand C-car boasting 40 mpg (5.9 L/100 km), but bridging the product waves are plans for special-edition vehicles such as a Dodge Charger Superbee and a Gucci-styled Fiat 500 A-car, Marchionne says.

He also notes second-half powertrain upgrades such as 8-speed transmissions for the ’12 300 and its Charger platform-mate, along with plans to replace the Jeep Wrangler’s 3.7L V-6 with Chrysler’s new 3.6L Pentastar V-6, one of Ward’s 10 Best Engines for 2011.

Chrysler 200 inventory less than two per dealer.

“Let the machine run,” Marchionne says of Chrysler’s manufacturing network. “We need to get product on the ground with the dealers.”

Chrysler’s assembly network has been running near 70% capacity this year, while trending upward, according to Ward’s data. The auto maker was at 75% capacity in March.

Marchionne admits to setbacks, such as a brief delay in the 300’s rollout – a measure to ensure quality – and the plodding pace of bringing U.S. Fiat dealers online.

“Officially, we are behind schedule,” he says, noting fewer than 50 U.S. stores have been authorized to sell the 500, even though production launched in December.

Chrysler handpicked 200 North American dealers to sell the much-anticipated car. But the auto maker is requiring the 500 be sold in “salons” to distinguish the brand.

Further complicating matters are the production implications of Japan’s supply-chain crisis. Aftermath of the March 11 earthquake, tsunami and power outages that stunned the island nation has crimped exports of key parts and components.

A joint Chrysler-Fiat team is “actively managing this issue on a daily basis,” Marchionne says.

“Most of the issues that have impacted both Fiat and Chrysler on this issue will be removed by the fourth quarter of this year,” he says. “The important thing is we are not moving guidance for the year as a result of any of these events.”

For the full year, Chrysler remains on track to record:

Chrysler recorded first-quarter net income of $116 million, a positive swing of $313 million compared with like-2010.

The auto maker credits its performance on worldwide sales of 394,000 vehicles, an 18% jump from prior-year.

Today’s disclosure marks the company’s first post-bankruptcy year-over-year measure of financial performance. Chrysler had declined to make such comparisons, saying 2009’s Chapter 11 filing rendered irrelevant an association with 2010 results.

Chrysler also releases details of the financing it will use to repay government loans that helped rescue the auto maker from bankruptcy. The company is acquiring senior secured credit facilities, including an expected $3.5 billion 6-year term loan and a $1.5 billion five-year revolving credit facility, in addition to an expected $2.5 billion in new secured debt securities with maturity dates of eight and 10 years.

By year’s end, Fiat is expected to hold 51% of Chrysler.

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