Chrysler turns first profit since bankruptcy

DEE-ANN DURBIN - AP Auto Writer
May 2, 2011
FILE - In this April 28, 2011 file photo, an assemblyman works on an engine for the Chrysler Jeep or the Dodge Durango which are built on the same line at Chrysler's Jefferson North Assembly Plant in Detroit. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday, May 2, 2011. The profit is a milestone in Chrysler's long road back to health after its 2009 bankruptcy. It last reported a profit in 2007. (AP Photo/Carlos Osorio)
FILE - In this April 28, 2011 file photo, an assemblyman works on an engine for the Chrysler Jeep or the Dodge Durango which are built on the same line at Chrysler's Jefferson North Assembly Plant in Detroit. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday, May 2, 2011. The profit is a milestone in Chrysler's long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

For the first time in nearly seven years, Detroit's car companies are all making money.

Chrysler, the last of the three to return to profitability, said Monday it earned $116 million in the first quarter on revenue of $13.1 billion. The company, which emerged from bankruptcy protection a little less than two years ago, hadn't reported net income since 2006.

General Motors Co., which also went into bankruptcy in 2009 and took billions in government aid, has reported four profitable quarters and held an initial public offering in November to help repay its loans. Ford Motor Co., which didn't take bailout money but nearly filed for bankruptcy five years ago, recorded its eighth consecutive quarterly profit last week. Ford's 2010 profit of $6.6 billion was the highest in a decade.

"It's kind of miraculous," said Van Conway, a consultant and founder of turnaround firm Conway MacKenzie. "If all of us were to put ourselves back in 2009, could we imagine that GM could have done an IPO and these companies would be enjoying this level of profit? I don't think so."

It's the payoff for cutting staff, plants, car brands and wages during the recession and bankruptcy. At the same time, car sales are rising as the economy improves. Detroit is also taking away customers from Toyota Motor Corp., which was hurt by safety recalls last year and the recent Japanese earthquake.

The results are a triumph for Chrysler CEO Sergio Marchionne, who bet that he could remake the company the same way he turned around Italian automaker Fiat SpA six years ago. But he remains wary of declaring victory.

"Success is incredibly temporary. The first quarter is done, but we've got a lot of quarters to do," he said.

Marchionne said Chrysler expects to earn between $200 million and $500 million this year. That would help the company reach its goal of having a public offering later this year or early next. Investors want to see a string of profitable quarters before the IPO happens.

Chrysler's sales rose 18 percent worldwide in the first three months of 2011. New models are helping. U.S. sales of the revamped Jeep Grand Cherokee SUV jumped 64 percent in the latest quarter. Sales of the Chrysler 200 sedan more than quadrupled over those of its predecessor, the Sebring. The 200 has better materials, handling and fresher styling than the Sebring, which Consumer Reports rated the least reliable family car among 2009 models.

Buyers also paid more for Chrysler's vehicles. The average price paid per vehicle rose $1,000 to $28,300. Chrysler cut its spending on incentives and reduced the number of vehicles going into low-profit rental fleets. Profit margins more than doubled to 3.6 percent.

GM, Ford and Chrysler all reported profits in the last quarter of 2004, but GM and Ford were soon posting billions in losses. Chrysler last reported net income in the second quarter of 2006, one year before it was sold by Daimler AG to private-equity firm Cerberus Capital Management.

Cerberus, which was looking for a quick turnaround, didn't invest the cash needed to weather the worst auto sales decline in more than 25 years. As a result, Chrysler came close to running out of money at the end of 2008. The U.S. government stepped in, authorizing $10 billion in aid and appointing Marchionne to run the company after it emerged from bankruptcy protection in June 2009.

The U.S. government remains a part owner of Chrysler, holding an 8.6 percent stake. Chrysler wants to sever those ties.

The company will soon repay $7.5 billion of the bailout from the U.S. and Canadian governments using a new, $3.5 billion bank loan, a $1.5 billion credit facility and a $2.5 billion debt offering. By repaying the debt, Chrysler will save millions in interest payments.

The U.S. government is also expected to recoup some of the bailout money when it sells its stock in the public offering.

Marchionne said the company has improved fuel economy by a combined 40 percent on its 2011 models. It also plans a significant shift to more efficient engines over the next three years, using technology from its partner Fiat.

Another setback has been the U.S. rollout of the Fiat brand, which the company hoped would lure more American to stylish small cars such as the Fiat 500.

Fiat sold just 500 of the subcompacts in the first quarter, putting it behind where it expected to be. Marchionne said it has taken longer than expected for dealers to get state licenses to sell the cars. Fewer than 50 of the planned 130 U.S. Fiat dealers are now open. The company had hoped to sell 45,000 Fiats here in 2011.

Conway said consumer confidence is improving, which will help car sales. Most companies expect total U.S. sales of around 13 million this year, up from 10.6 million in 2009 but still far from the 17-million level of the mid-2000s.

Marchionne feels bullish about Chrysler. Last month, Fiat, which is also run by Marchionne, said it will spend $1.3 billion to increase its stake in the American company. That will increase Fiat's holdings to 46 percent. Fiat hopes to control 51 percent of Chrysler by the end of this year.