Chrysler Group LLC, the U.S. automaker operated by Fiat SpA, has laid the “groundwork for a successful transformation,” the companies’ chief executive officer said today.
Sergio Marchionne, CEO of both Chrysler and Fiat, addressed workers in a message obtained by Bloomberg on the day the U.S. automaker raised its operating profit forecast for the year and said its net loss narrowed to $84 million in the third quarter.
“The changes we are bringing about are beginning to enter into the DNA of the company,” Marchionne said in the message. “You can tell by how the language and tone of conversations have changed, by the long hours people are working, and by the way teams form and function.”
Shawn Morgan, a Chrysler spokeswoman, confirmed the memo was sent.
“We knew when we began this reconstruction process that the road back would be a long one,” Marchionne said. “We’ve hit some key milestone and we’ve made progress in important areas. We have laid the groundwork for a successful transformation. I ask you to continue to have faith in your leadership.”
Chrysler Group still is bleeding, but says it got a whole lot healthier in the first quarter. The company today made its first report on its finances since it was created out of bankruptcy court last June 10. The company lost a staggering $3.8 billion from then through the end of the year, but reported it cut its net loss to $197 million from January through March -- and actually made money from selling cars and trucks, before interest and taxes.
The company, now run by Fiat, said it had an operating profit of $143 million in the quarter, helped particularly by truck sales. It also generated $1.5 billion in cash, padding its reserves to $7.4 billion and raising odds it can stay afloat as it replenishes the product pipeline. It predicted its operations would at least break even this year.
Chrysler made its report this morning in Michigan as Fiat began unveiling its five-year business plan in Turin, Italy. Drive On will bring you details, which should include products coming to Chrysler showrooms and plants, as they unfold. Sergio Marchionne, CEO of both, issued this statement on Chrysler: "This positive operating result in the first quarter is a concrete indication to our customers, dealers and suppliers that the 2010 targets we have set for ourselves are achievable."
Still, there was plenty in the report to depress those of you rooting for Chrysler to make it:
Chrysler's U.S. market share grew from 8.1% in 2009 to 9.1%, but U.S. sales grew just 5% vs. growth overall in the market of 15.5%. And about 40% of Chrysler sales were lower-profit sales to rental agencies and other fleets.
Naysayers remain skeptical that the company will survive until it can replenish its aging lineup. Max Warburton, an industry analyst at Sanford C. Bernstein in England, wrote that the positive cash flow is "almost irrelevant" and "being driven by dealer restocking and stretching payables. We remain unconvinced Chrysler will survive in its current form despite Marchionne's blood, sweat and tears."
While Marchionne's cost cuts have been impressive, Warburton wrote that the company's capital investments have been minimal, and it has been arguing with parts suppliers about payments for machinery to build future products.
Marchionne took a shot at such gloom-mongers as he began his presentation in Turin today on Fiat's five-year financial plans in Turin. He compared analyst reports putting down Chrysler's operating profits to the "Boulevard press," meaning the tabloids. "As we all know, in business it is ultimately only facts that prevail," he said.
For those of you keeping score at home: Chrysler's last annual profit was in 2005, when it made $1.8 billion, and the last quarter with a profit was the second quarter of 2006, when it earned $65 million.
NEW YORK – Neither rain nor ice nor Teamsters protests nor hotel fire alarms kept Chrysler CEO Sergio Marchionne from spreading the word that Chrysler is on the mend – whether an audience of auto dealers believed it or not.
The rumpled Italian executive said this morning he was more confident than ever in Chrysler’s plan, adding that the automaker had just under $5 billion in cash at the end of 2009 and would break even this year.
Worries about whether Chrysler could meet its plan “was a song we had heard before and we were not fazed,” Marchionne said.
Marchionne, speaking to a forum sponsored by the National Automobile Dealers Association and IHS Global Insight ahead of the New York auto show, also offered some tempered praise for dealers. He pledged that Chrysler would spend $500 million on its dealer network this year and noted it had reinstated about 25% of the dealers it cut following last year’s bankruptcy.
But he also said the arbitration for cut dealers pushed through Congress by NADA had created uncertainty that was blocking progress in other areas.
“All the time taken up with this is unhelpful,” he said. “There’s an inequitable impact on Chrysler.”
And he noted that today was the one-year anniversary from the announcement by President Barack Obama that Chrysler had 30 days to complete a partnership with Fiat or close. Marchionne said he keeps a poster with some of Obama’s remarks on his wall as a reminder.
He also gave some insight into how he works, namely almost around the clock, with 78 executives around the globe reporting directly to him.
“I feel a lot more comfortable today than I did 12 months ago,” Marchionne said.
Marchionne’s remarks were delayed by troubles with his flight out of Detroit, then interrupted when six protesters representing union carhaulers briefly tried to push into the meeting room. The protesters wore white jump suits labeled “Fiat Chrysler Crash Dummy,” and were forcibly ejected from the hotel.
About 20 minutes later, the hotel announced it was testing its fire alarms. Marchionne shook his head, and kept reading.
Chrysler has been struggling while it rushes to refill what had been an empty backlog of new models, with sales barely keeping pace with the market. The automaker has also stayed on the sidelines of an increasingly aggressive price war launched by Toyota to regain market share following its recalls.
Marchionne said the Jeep Grand Cherokee would launch May 3, and would be on sale in June or July. And he vowed to give more insight into Chrysler’s financials on April 21, when Fiat is scheduled to review its finances.
National Automobile Dealers Association Chairman Ed Tonkin sought to impress Sergio Marchionne with his mastery of Eye-talian when he introduced the Chrysler-Fiat CEO on Tuesday at the NADA/IHS Global Insight Conference in New York.
"I've been practicing my pronunciation," he boasted.
"It's Mar-chee-ohhhhh-nay," he said. "I also know how to say Fair-rahrrr-rhee."
Marchionne was unimpressed. "There's an easy American pronunciation of my name: Marchionne," he said. "And let's just stick with Ferrari."
Yearning for a sole mate
At Tuesday's "Learn, Meet, Succeed" seminar hosted by the Engineering Society of Detroit, arrivals to the society's Southfield headquarters were baffled by the sight of a lone lady's black high-heeled shoe on the sidewalk. It didn't seem like traditional engineering attire -- until the Insider realized the errant shoe was indeed in the right place to be reunited with its owner. Obviously, she was a hydraulic engineer.
"And how did you know that?" a co-worker asked.
"Because," Insider replied, "it was a pump."
Find a tiki, win a Wrangler
At Chrysler Group LLC, the spirit appears to be strong even if the pace of new product launches remains weak.
The Auburn Hills automaker is filling the gap until this summer's launch of the new Jeep Grand Cherokee with some wacky Jeep Wrangler giveaway contests. They harken back to the days of the prankster Chrysler that liked to have Jeeps slam through huge windows or corral bulls in downtown Detroit at auto shows -- before stern new owners and dwindling resources extinguished the carefree spirit.
A feistier Chrysler is scheduled to kick off a Jeep promotion today by inviting five trivia winners, including a man from Wixom, to the New York auto show to dig through a giant sandbox to find a hidden tiki and win a Wrangler Islander. Three more tikis will be hidden across the country, and the first treasure hunter to find each tiki and call the attached phone number wins another Islander.
Would-be winners must go to Jeep Tiki Web sites, Twitter and Facebook pages for clues about the tikis' whereabouts. The stunts may not add directly to the goal of breaking even this year, but they promise to turn Wranglers into the 21st century's version of buried treasures.
Chrysler Group LLC vowed to return to profitability by 2011 and pay back billions of dollars in U.S. bailout loans by 2014, an ambitious set of targets for a company that exited bankruptcy protection just months ago.
At the end of a day-long presentation of its long-awaited turnaround plan Wednesday, the company said it is counting on a slew of new models to spark a surge in sales over the next five years and drive its revival.
Chrysler—which has seen its sales plunge by half in the last few years—predicted revenue will rise about 20% a year, from $42.5 billion in 2010 to $67.5 billion in 2014, and said it would break even in 2011.
"Today is the first day of a new Chrysler. We have laid out our plans and we have become publicly accountable for the delivery," Chief Executive Sergio Marchionne said at corporate headquarters in Auburn Hills, Mich.
The forecasts—more bullish than many people expected—suggest the Obama administration's investment in the company could yet pay off. The government saved Chrysler with $9 billion in loans and pushed it into bankruptcy and an alliance with Italy's Fiat SpA in hopes of saving American jobs and an icon of U.S. industrial might.
"Some of you have [assumed] that we are losing money. This is not true,'' said Mr. Marchionne, who also is Fiat's CEO.
He and other executives said Chrysler already is seeing a significant improvement in its financial performance.
It broke even in September, has taken in more cash than it spent in the last few months and doesn't expect to use up cash even as it spends to develop and launch models based on Fiat technology.
As a result, Chrysler ended September with $5.7 billion in cash, up from $4 billion at the end of June, Mr. Marchionne said. On the sidelines of the presentation, the company's chief financial officer, Richard Palmer, said that "going forward we don't expect to consume cash."
Before Chrysler was ushered into bankruptcy April 30, it was burning more than $2 billion in cash a month. In bankruptcy court, Chrysler shed billions of dollars in debt, slashed its labor costs, shed hundreds of dealers and closed plants.
Mr. Palmer said the company expects to repay all its U.S. loans by 2014.
To hit its financial targets, Chrysler expects to double its world-wide sales, from 1.3 million cars and trucks in 2009 to 2.8 million in 2014, and predicted its U.S. market share will rise from about 6% in 2009 to 11% in 2014.
But Chrysler has based prior turnaround plans on big increases in sales only to be disappointed.
Earlier this decade, when it was owned by Daimler AG, Chrysler pledged to boost sales by one million vehicles, from about two million a year to three million, over 10 years. After a few years of gains and profits, growth stalled, losses mounted and Daimler gave up a majority stake in Chrysler in 2007.
Chrysler is facing considerable skepticism in automotive and government circles. Last week, the Government Accountability Office questioned whether the U.S. can recoup its investments in car makers.
Industry analysts who sat through the presentation of the company's turnaround plan said Chrysler's survival still depends heavily on whether the U.S. economy bounces back and car sale rise from their current historically low levels.
"Everything is in the market—that's the big kahuna. Next year is critical," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. Mr. Cole said if the U.S. market returns to annual sales of 12 million vehicles next year, Chrysler will fare well.
Mr. Cole also pointed out that Chrysler doesn't have many new products coming out in the next year.
Mr. Marchionne's team is undaunted. "We are confident we can weather the storm," said Mr. Palmer, who recently joined Chrysler from Fiat.
Chrysler received a significant endorsement after its presentation. Michael J. Jackson, chief executive of AutoNation Inc., a large dealership chain, said he was impressed by the plan and is now interested in acquiring additional Chrysler stores.
"AutoNation is a buyer as of tomorrow," Mr. Jackson said.
As part of Chrysler's comeback plan, the company aims to boost its Ram truck sales by 50% over the next five years, increase global Jeep sales by 60% and more than double U.S. sales of Chrysler-brand vehicles.
It will add small vehicles to its Dodge car brand and eliminate several Jeep products in favor of new models jointly developed with Fiat. By 2014, about half of Chrysler's engines will be based on Fiat technology.
New products are vital to creating consumer buzz to drive sales. Chrysler's sales continue to suffer more than its competitors'. In October, the auto maker's U.S. sales fell 30% while both Ford Motor Co. and General Motors Co. notched increases.
Chrysler also vowed to improve the quality of its vehicles, which have often scored poorly in customer-satisfaction surveys.
"We get it. We are not in denial," said Doug Betts, Chrysler's top quality executive. "We've got an issue to deal with both in terms of what people think of our quality and the reasons behind what they think."
Don Metzner, president of Armory Automotive, a dealer in Albany, N.Y., said he was encouraged to hear that Chrysler has positive cash flow.
"Not only was it a surprise, it's the essential ingredient needed to bring the exciting new product pipeline to fruition. My confidence in Chrysler is greatly enhanced," said Mr. Metzner, who attended the presentation.
Chrysler said it plans to invest $500 million in its dealer network over the next five years, including $120 million in 2010.
Already mired in a tough year, Chrysler Group LLC appears headed for more bad news.
The auto maker's dealers are bracing for a steep drop in September sales due to the unusually lean inventories the company was left with after its bankruptcy reorganization and a long summer shutdown of its plants.
Most car makers expect a sales lull after an August surge sparked by the U.S. government's "cash for clunkers" incentive program. But analysts say Chrysler is on track for a significantly weaker showing than rivals.
IHS Global Insight projects Chrysler's September sales will fall 30% from September 2008, compared with a 19% slide industrywide. Meanwhile, Toyota Motor Corp., which also has low inventories, is expected to see U.S. sales drop 15%, Global Insight says.
A deep sales decline would add to the headaches facing Sergio Marchionne, chief executive of both Chrysler and its new alliance partner, Fiat SpA. Since taking the post in June, Mr. Marchionne has reorganized and thinned out Chrysler's management and has been trying to fashion a long-term model strategy that adds Fiat-developed cars to Chrysler's lineup.
The work has proved more difficult than Chrysler's new Italian owners expected, according to people familiar with the matter. Thousands of engineers left Chrysler in the last few years as it offered job buyouts. That weakened its development capability and slowed progress on its product plan, these people said.
Chrysler's ownership history also has distorted its product-creation system. Under the ownership of Daimler AG, which ended in 2007, the company relied heavily on the German parent to engineer certain vehicles such as the Chrysler 300 and key components. Now it lacks those resources.
As a result, Chrysler and Mr. Marchionne have had little progress to report publicly in the last two months. In contrast, General Motors Co., which also went through a government-sponsored bankruptcy, has been showing off new models it is working on, including the Volt plug-in hybrid, and talking about coming cars, including compact models for Cadillac and Buick. GM also kicked off a marketing and ad campaign featuring its new chairman, Edward E. Whitacre Jr.
Mr. Marchionne is expected to speak to reporters this week at an auto show in Frankfurt, Germany, but he may give only a timetable for when Chrysler expects to unveil its new model strategy rather than reveal the strategy itself.
As part of the plan, Chrysler is expected to announce it will make the Fiat 500 subcompact in Mexico for sale by Chrysler dealers, build another Fiat-developed small car at a U.S. plant, and work with Fiat to devise a new midsize sedan -- a high-volume segment where Chrysler barely competes now, people familiar with the company's strategy said.
The strategy will be discussed at a company board meeting later this month, these people said. Chrysler declined to comment on its product plans.
Meantime, Chrysler dealers said sales are falling because they have few vehicles on their lots.
"September is starting off extremely slow," said Dave Kelleher, owner of two Chrysler dealerships in the Philadelphia area. Mr. Kelleher's stores together usually sell about 150 vehicles a month, but right now he has only 72 in stock. "If I sell all the cars on my lots I will have one of my worst months this year," he said.
At the end of August, Chrysler's inventory fell to about 100,238 vehicles, enough to last just 28 days at the current selling rate, according to the company. A year ago it had a 93-day supply.
People familiar Chrysler's thinking said the company is betting the drop in inventory will boost the prices customers pay so the auto maker can pull back on costly rebates.
The strategy appears to have had an effect. According to Edmunds.com, the average price consumers paid for Chrysler vehicles in August was $29,032, the highest in 12 months.
Still, the company is aiming for a 60-day supply by the end of the year, said a person familiar with the company's thinking.
But boosting inventory is proving difficult. Chrysler said Monday it had to delay adding a second shift to an Illinois plant by more than a month due to issues with suppliers.
