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Chrysler Operating Earnings Could Near $2 Billion

Maker likely to report first annual net profit since 1997.

by on Jan.30, 2012

A reason to smile for Chrysler CEO Marchionne?

Borrowing the title of a ‘60s-era counterculture novel, Chrysler executives might say, “Been down so long it looks like up to me,” especially if preliminary estimates hold true on Wednesday.  That’s when the long-troubled U.S. maker plans to report its fourth quarter and full 2011 financial figures which – analysts anticipate – could see as much as $2 billion in full-year operating profits.

That would mark the first time Chrysler will have gone into the black for the full year, on an operating basis, since 1997, just before its ill-fated “merger-of-equals” with German’s Daimler AG.  Significantly, the announcement of any full-year profit would come as a stark contrast to the situation the maker found itself in less than three years ago, when it was forced to file for Chapter 11 bankruptcy protection.

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On a net basis, the maker went $42 million into the red for the first nine months of 2011 – but that figure includes $551 million in second-quarter charges resulting from CEO Sergio Marchionne’s decision to pay off Chrysler’s federal bailout loans years ahead of schedule.  Even with those charges, the smallest of the Detroit makers is expected to land in the black for the full year.

In 2010, Chrysler racked up a $652 million loss – but the year before it went a painful $8 billion into the red even after discharging billions in debt and other obligations through the bankruptcy process.  The maker lost $199 million during the final quarter of 2010.

The maker has clearly seen things turn up in recent months.  Its U.S. market share surged to 10.7%, largely due to new products like the Chrysler 200 sedan and Jeep Grand Cherokee.  During the final quarter, sales surged 36% at home, and 22% overseas – where it has begun gaining ground with products like the bigger 300 sedan sold in European market through the Lancia brand.

Global volume reached 1.86 million for all of 2011.

Chrysler received a total of $12.5 billion in federal aid in 2008, during the waning days of the Bush Administration, and 2009, once President Barack Obama took office and expanded on the automotive bailout.  The maker has repaid $11.2 billion of that bailout, former U.S. auto czar Ron Bloom joining Chrysler CEO Marchionne last year for the official ceremony marking the payoff.  (A total of $1.3 billion in aid provided by former Pres. George W. Bush will not be repaid.)

Following the repayment Chrysler’s Italian maker increased its stake in the U.S. maker by 20%.  It has since boosted its holdings to 58.5%.  Fiat has indicated in federal filings it may seek to reach a stake of 70% or higher eventually.

By refinancing its $7.6 billion in federal debt Chrysler also was able to save an estimated $300 million annually sharply reducing its interest rates.

How well Chrysler does in 2011 remains to be seen.  Marchionne expressed cautious optimism during interviews at the recent Detroit Auto Show, with critical products including the new Dodge Dart coming to market in the months ahead.  But he made it clear that, in his mind, the U.S. maker’s future is indelibly linked with its new Italian partner.

“Fiat and Chrysler come from two different pasts, but they have something very strong in common,” said Marchionne. “Both have been to hell and back.”

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