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Chrysler Earnings Jump 16% – Give Boost to Italian Partner Fiat

But production issues, recalls, were costly problems

by on Jul.30, 2013

Fiat/Chrysler CEO Sergio Marchionne.

Despite paying a heavy price for a string of recent recalls, Chrysler Group LLC reported a 16% increase in earnings during the second quarter of 2013 and the company’s chief executive said he expects even stronger numbers during the second half of the year – though earnings are still expected to fall short of earlier expectations..

But Chrysler earnings would have been even stronger were it not for a major recall to address a Jeep safety issue as well as production shortfalls. Even so, the Detroit maker’s results were enough to provide a much-needed boost to its Italian partner Fiat which quadrupled its own net income for the second quarter despite ongoing problems in its home European market.

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The automaker posted net income of $507 million, compared to $436 million during the same quarter a year earlier. The second quarter marked Chrysler’s eighth consecutive quarter of positive net income. Net revenue increased 7% to $18 billion and Chrysler’s operating profit also increased 7% to $808 million from $755 million a year ago.

“Chrysler Group is poised for a very strong performance in the second half of the year, with the new Jeep Grand Cherokee and Ram 1500 pickup earning best-in-class recognition, and the all-new Jeep Cherokee now rolling off the line,” Chrysler Group LLC Chairman and CEO Sergio Marchionne said in a statement accompanying the second-quarter release.

If anything, Marchionne noted that Chrysler faced some challenges during the first half of the year.  That was particularly the case for its Jeep brand which had ended production of the Liberty model as it began the changeover of its big Toledo assembly to produce the all-new Cherokee.

(Jeep recalls 1.5 million SUVs. Click Here for the full story.)

“The timing of product launches and capacity increases causes this year’s performance to be biased to the second half,” the CEO emphasized, “and a continued aggressive drive for excellence and flawless execution will be essential to attain the targets we’ve set for ourselves.”

In fact, Chrysler is likely to miss earlier targets, the company confirmed. It now anticipates shipping just 2.6 million vehicles for the full year, at the low range of its original estimate for 2013, while the slow start to the year is likely also to result in earnings coming in at the low side of its $1.7 billion to $2.2 billion forecast.

(Chrysler getting charged up over electric vehicles. Click Here for details.)

The 7% increase in the second-quarter operating profit was primarily due to higher shipment volumes and positive pricing, partially offset by higher industrial and launch-related costs, as well as a $151 million charge related to the voluntary safety recall for the maker’s various Jeep products announced in July.

The National Highway Traffic Safety Administration had originally called for a much larger safety campaign to address a possible fire hazard with 2.7 million vehicles. In the end, Chrysler and NHTSA wound up compromising on just 1.2 million.

Chrysler’s Modified Operating Profit was $1.2 billion for the first half of the year.

(First drive: Fiat 500L. Click Here for the review.)

The automaker ended the second quarter with another strong surge in demand for its various products, worldwide sales climbing to 643,000, up 10% from a year ago. That was driven primarily by a 17% increase in U.S. retail sales – and 10% overall when including fleet numbers — Chrysler said in the earnings report for the second quarter. By comparison, the U.S. market overall gained 8% for the second quarter.

The company’s U.S. market share was 11.4% for the second quarter, compared with 11.2% a year ago; Chrysler Group market share was 15.1% in Canada, up from 14.5% a year ago.

Marchionne, who serves as CEO for both Chrysler and Fiat, hopes to complete the merger of the two companies in the coming quarters though that target is on hold as the makers wait for a decision by a Delaware arbitrator who has to set a price on the remaining Chrysler shares now held by the United Auto Workers Union’s retiree health care trust.

Even without finalizing those ties, Chrysler’s relatively strong numbers played well for Fiat which has been struggling under the weight of the worst sales downturn the European market has seen in two decades.

Fiat was able to tap Chrysler to boost its net profit for the second quarter to 142 million euros, or $188 million. It restated year-earlier earnings at 32 million euros. Without the assistance of its American ally, Fiat would have lost 247 million euros, largely due to a 5% decline in European sales.

Paul A. Eisenstein contributed to this report.

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