Barely three years after it plunged into bankruptcy, the Chrysler Group is reporting its biggest quarterly profit in 13 years, its $473 million in earnings more than the automaker made for all of last year.
The uptick in earnings reflects the maker’s strong sales for January – March period when demand for Chrysler products rose 39%, handily outpacing the U.S. auto industry as a whole. But Chrysler also benefited from significant interest savings after having paid off its remaining federal bailout loans.
“Another positive quarter…is affirmation that the Chrysler team is maintaining its focus,” said Sergio Marchionne, CEO of both Chrysler and Fiat, the Italian automaker that assumed control after the American maker emerged from Chapter 11 protection.
Chrysler’s first-quarter earnings were more than four times the $116 profit posted during the first quarter of 2011 – and the biggest figure since the maker reported a $682 million profit during the third quarter of 1998.
But there are some significant differences between then and now. In 1998, Chrysler’s product portfolio was largely focused on pickups, SUVs and minivans. While light trucks are still important to the maker, it is now increasingly focused on passenger cars, such as the full-size Chrysler 300C and midsize 200 sedan, as well as the new Dodge Dart it is preparing to launch.
The introduction of the Dart, which is largely based on the platform of the European Alfa Romeo Giulietta, is a “true melding of Chrysler’s and Fiat’s engineering and styling strengths,” said Marchionne. It is likely to become a major test of the alliance between the makers, Fiat now controlling 58.1% of Chrysler stock and planning to push that to more than 70% in the near to mid-term.
Chrysler’s first-quarter performance was buoyed not only by strong sales but a jump in its average transaction price, or ATP, consumers spending about 5% more per vehicle, at $29,234, according to the data tracking service TrueCar.com.
“Chrysler gained 2 full percentage points of US market share compared to a year ago, while increasing their transaction prices and lowering inventory turn times significantly –all resulting in a much improved bottom line,” said Jesse Toprak, Vice President of Industry Trends and Insights at TrueCar.com, who added that Chrysler should get, “full credit for having the most desirable line up of vehicles that they have ever had in their showrooms.”
For the quarter, Chrysler Group revenues rose 25% to $16.4 billion.
There is significant competition in today’s automotive market but the market also continues on an upswing that, barring another economic meltdown should see overall new vehicle sales reach 14 million for 2012, at least 1 million above 2011’s numbers. Chrysler is expected to maintain its sales and revenue growth, especially if it can hold onto its current market share, 11.5% compared to 9.4% for all of 2011, analysts forecast.
Also assisting its earnings surge, Chrysler is now paying less to borrow money after getting out from under the terms of its federal bailout. Having paid off its remaining government loans last May it saved $71 million in interest charges during the first quarter, it revealed.
Chrysler received $12.5 billion in assistance from the government before, during and after its emergence from Chapter 11. The U.S. Treasury has recouped $11.2 billion of that and has written off the remaining $1.3 billion.
The maker does have a number of challenges ahead. It has to successfully launch the new Dodge Dart, which not only goes up against traditional compact segment leaders like the Toyota Corolla and Honda Civic, but also new domestic challengers such as the Ford Focus and Chevrolet Cruze.
The first-quarter surge in fuel prices – now near record levels in most U.S. markets – could further weaken demand for the pickups and SUVs that remain a core part of the Chrysler line-up. The automaker has been hoping to offset that with updated designs and advanced powertrains, such as the more fuel-efficient V-6 it will offer in the 2013 Ram 1500 truck.
One of the biggest challenges remains the need to build Chrysler’s presence overseas. It can no longer count on the North American market, Marchionne readily acknowledges. The maker is now supplying a number of models to European dealers – though they are being sold there through various Fiat brands.
Meanwhile, Chrysler has a number of offerings on display in Beijing this week at the huge Auto China 2012 auto show. It marks the return to what is now the world’s biggest automotive market.