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Chrysler Reduces Net Loss, Posts Operating Profit for Q4

Declaring turnaround firmly underway, maker plans bonuses for both hourly and salaried workers.

by on Jan.31, 2011

"It would have been inexcusable" not to reward workers, said CEO Sergio Marchionne.

Showing further signs of a comeback from its 2009 bankruptcy, Chrysler significantly narrowed its net loss for the fourth quarter of 2010 while posting an operating profit for the final three months of the year.

The maker, meanwhile, said it expects to have its bottom line firmly back in the black for all of 2011 – with projected earnings of somewhere between $200 million and $500 million.  Strong earnings will be essential for the maker’s plan to stage an initial public offering sometime during the second half of the year.

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The good news will be shared with company workers, CEO Sergio Marchionne alerting workers in a company-wide e-mail that both salaried and hourly staff will receive “performance award payments.”

“I want to express my gratitude to everyone for their hard work,” said the chief executive’s note.  “You are the authors of this success.  I want to thank you for your dedication, your creativity and your willingness to embrace change without which these results would not have been achieved.”

Chrysler’s bottom line went $199 million into the red during the fourth quarter, a significant decline from the $2.7 billion deficit it reported a year earlier.  But it was also more than double the $84 million loss posted during the July-September quarter of 2010, reflecting numerous cost increases.

The maker has been ramping up its product development programs, launching a number of new models like the Jeep Grand Cherokee, Dodge Durango and Chrysler 300, while preparing a wave of additional offerings set to follow in the 2012 model-year.  It is also facing a number of headwinds, including rising raw material costs.

Revenue for the fourth quarter dropped 2%, to $10.8 billion, driven in part by a 7% decline in global sales.

Chrysler might have otherwise ended 2010 in the black, however, were it not for a $1.3 billion interest payment, asserted Marchionne, in a conference call with media and analysts.

Nonetheless, key signs suggest Chrysler is getting its operations under control even as it is showing improvements in the marketplace, ending 2010 with increases in both sales and market share in the core North American market, and reporting a fourth-quarter operating profit of $198 million.  That was down from a $239 million operating profit for the third quarter.

For all of 2010, Chrysler lost $652 million – a major turnaround from the $8 billion loss it recorded in 2009, a year that would have seen the maker fold were it not for the help of a U.S. government bailout.  Unlike cross-town rival General Motors, however, the White House chose to take a minority stake in Chrysler following its re-emergence from Chapter 11.  Instead, the government paired Chrysler up with Europe’s Fiat.

The Italian automaker was given a 20% stake in the troubled U.S. company – and given a series of goals that, if met, could eventually increase its holdings in Chrysler to 51%.  (One goal is to increase overseas sales. Click Here for more on Chrysler’s big European product announcements scheduled for the upcoming Geneva Motor Show.)

Chrysler must yet sell off the Treasury’s minority stake and repay its government loans.  Marchionne, who serves as chief executive for both companies, has set he plans to pay back “every penny” of the taxpayers’ money.  To do so, however, will require taking Chrysler public again.  And, in an interview with, earlier this month, Marchionne firmly declared his intention of doing so with an IPO planned for the second half of 2011.

The strong response to General Motors’ November 2010 stock offering served as a “snowplow,” preparing the way for Chrysler, suggested Marchionne.  Nonetheless, analysts say the smaller maker still must prove it is not just viable but that it has serious long-term profit potential.

“It can safely be said that what Chrysler delivered last year, on both the product and financial fronts, surpassed many expectations,” Marchionne said Monday, insisting that this is prologue to even better results to come.

That would be great news to workers – on several fronts.  Right now, the company’s largest shareholder is a United Auto Workers Union retiree health care program, which currently holds a 68% stake in Chrysler.

Workers have been hammered badly by Chrysler’s declining health, the maker cutting 35,000 jobs in its run-up to bankruptcy.  The good news is that it has added 5,000 jobs since emerging from Chapter 11.  Many of the new employees are being added to assembly lines, including the Jefferson Avenue Assembly Plant, in Detroit, producing the new Jeep Grand Cherokee and Dodge Durango models.

But a significant number of others are being added to Chrysler’s engineering ranks.  Over the last decade, former owners Daimler and Cerberus stripped out much of Chrysler’s product development capabilities, something that Marchionne has worked fast to reverse.

In the long-term, Chrysler and Fiat will share product development and manufacturing duties, but the U.S. maker will notably take the lead in developing advanced battery-electric technologies, including a new hybrid powertrain that will be used in future products sold around the world under many of their different brand names.

“Our job is not yet done,” proclaimed Marchionne, during his telephone conference. “We have a lot of work ahead to fulfill our five-year business plan objectives.”

Indeed, Chrysler’s full-year revenues of $41.9 billion were $600 million short of the projections in its five-year business plan.

Nonetheless, the CEO declared, “It would have been inexcusable to not recognize what our people have done,” through bonuses.

The Chrysler bonuses reportedly will come to $750 per worker.  Ford Motor Co., despite a weaker-than-anticipated fourth quarter last week announced it would pay out $5,000 profit sharing bonuses to its U.S. hourly workers.  Significantly, that figure was larger than what would have been required by the formula set up in the current Ford contract with the UAW.

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