09 August 2010

Chrysler Net Loss Narrows to $172 Million on Lower Costs, Increasing Sales‏


Chrysler Group LLC, the U.S. automaker run by Fiat SpA, reported a second-quarter net loss that narrowed to $172 million, benefiting from lower costs and higher U.S. demand, while operating profits widened.

Revenue rose 8.2 percent to $10.5 billion (7.9 billion euros) compared with the first three months of the year, the Auburn Hills, Michigan-based automaker said today in a statement. The net loss narrowed from $197 million in the first quarter. Operating income rose 28 percent from the first quarter to $183 million.

Chief Executive Officer Sergio Marchionne is benefiting from lower costs after last year’s bankruptcy, while carrying higher customer discounts and expenses related to the production of the redesigned Jeep Grand Cherokee. Marchionne has said the company, which has earned $326 million in first-half operating profit, may sell shares to the public next year.

“It’s a solid step on the way toward going public and validating going public,” Joe Magyer, a senior analyst at The Motley Fool in Alexandria, Virginia, said in a telephone interview before the release.

Worldwide vehicle sales rose to 407,000 cars and trucks during the second quarter, from 334,000 in the first three months of the year, Chrysler said.

U.S. sales in the period rose 31 percent from a year earlier, when the company was restructuring in bankruptcy, while the overall industry increased 18 percent, according to Autodata Corp., a research company based in Woodcliff Lake, New Jersey. Chrysler’s U.S. deliveries have gained 11.9 percent in the first half, trailing the industry’s 16.7 percent increase.

Cash Increases

“The second quarter operating profit confirms that Chrysler Group is on track to achieve its goals, yet an extraordinary amount of work still lies ahead,” Marchionne said in a statement.

Chrysler said its cash increased to $7.84 billion at the end of June from $7.37 billion on March 31. The company said it can draw on $2.3 billion in credit from U.S. and Canadian governments.

The company needs to keep a minimum cash balance of about $3 billion to pay for intra-month working capital requirements, Bruce Clark, senior vice president at Moody’s Investors Service, said in a November 2009 note.

Chrysler owes $5.8 billion to the U.S. Treasury, which holds a 10 percent stake in the company. Canada owns 2.5 percent, and a UAW trust for retiree medical costs holds 68 percent.        

Increasing Stake

Fiat, which owns 20 percent of Chrysler, can increase its stake by meeting certain milestones. Marchionne, who also is Fiat’s CEO, has said he expects to increase the stake by 5 percent this year by introducing the Fiat 500 in the U.S.

Marchionne on July 30 told reporters in Detroit that Chrysler could be profitable on a net basis if it wasn’t making interest payments to the U.S. government.

“We have enough cash to pay it all off but you can’t run a business without cash,” he said.

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