Chrysler Reports a $181 Million Profit After Paying Back Government Loans

Chrysler Group LLC, the U.S. automaker majority owned by Fiat SpA (F), reported second-quarter net profit of $181 million, after excluding losses from paying off U.S. and Canadian government loans early.

The adjusted profit compares to a net loss of $172 million during the same time period last year, the Auburn Hills, Michigan-based automaker said today in a statement. Including losses from the debt repayment, Chrysler lost $370 million in the quarter, the company said.

Chief Executive Officer Sergio Marchionne paid off the government loans during the quarter as he works to quicken the merging of Chrysler and Fiat operations. He may announce a merged management structure for Fiat and Chrysler this week, two people familiar with the matter have said. They declined to be identified discussing the restructuring before it’s announced.

“Refinancing our debt and repaying our government loans six years early, reinforces our conviction that we are on the right path to rebuilding this company,” Marchionne said in a statement.

Chrysler and Fiat are “a few days” away from announcing the combined leadership structure for the two companies, he said today in a conference call with reporters and analysts.

Extracting Value

“It is really the way in which we ultimately will extract the highest possible value from the alliance,” he said. Merging the automakers, he said, will start showing “benefits pretty quickly.”

Chrysler reiterated the automaker’s goal of turning an annual net profit of $200 million to $500 million in 2011 after losing $652 million last year. The 2011 forecast excludes the $551 million in losses from paying off the government debts on May 24, the company said.

Chief Financial Officer Richard Palmer had said Chrysler would have costs of about $500 million associated with paying off the loans early.

Chrysler reported a first-half adjusted net profit of $297 million and a net loss of $254 million.

Second-quarter net revenue rose 30 percent to $13.7 billion. Global sales rose 19 percent to 486,000 vehicles during the quarter, as the automaker gained market share in the U.S. and Canada. Marchionne has set a target of 32 percent growth to 2 million for the year.

Chrysler shipped 999,000 vehicles, a 23 percent gain, through the first half, the company said.

‘In Reach’

“The 2 million number is totally in reach of Chrysler,” Marchionne said today of the shipments in a conference call with analysts and reporters.

U.S. sales of the Jeep and Dodge brand, helped by the redesigned Grand Cherokee and new Durango, respectively, drove much of Chrysler’s sales growth. Jeep sales rose 64 percent in the second quarter compared with last year while Dodge deliveries increased 13 percent, according to researcher Autodata Corp.

Chrysler’s bottom line was further helped by a 19 percent reduction in average customer discounts and an 11 percent increase in average transaction price, according to TrueCar.com, a Santa Monica, California-based website that tracks auto sales.

The automaker was helped by improved product and tight inventory industrywide following the March earthquakes in Japan that disrupted competitors’ production, said Jesse Toprak, an industry analyst with TrueCar. .

‘Best-Case Scenario’

“The best-case scenario for any automaker in terms of earnings impact is when the transaction prices are up and when incentives are down,” he said. “It just means the direct flow is to the bottom line.”

Second-quarter modified operating profit, a measure that excludes items such as taxes, interest and pension-related costs, more than doubled to $507 million from $183 million a year earlier, the company said.

The improvement was primarily because of increased sales and improved pricing and inventory mix, Chrysler said. Advertising and manufacturing costs also rose, the company said.

The company had $10.2 billion in cash on hand at the end of June, an increase of $300 million from the end of March, Chrysler said.

Fiat’s Stake

Marchionne is moving to raise Fiat’s ownership in Chrysler to 58.5 percent this year after paying back U.S. and Canadian loans and buying out the taxpayers’ shares.

Fiat, without spending any cash, gained 20 percent ownership of Chrysler through the U.S. automaker’s 2009 bankruptcy reorganization. By exercising purchase options and meeting certain performance milestones, Fiat has obtained 53.5 percent of Chrysler on a fully diluted basis.

Marchionne has said he expects to meet the third and final milestone, tied to Chrysler assembling a 40 mpg vehicle in the U.S., by the end of the year, granting it a 5 percent stake.

The United Auto Workers retiree health-care trust is Chrysler’s other owner.

Chrysler and the UAW began formal contract negotiations yesterday. Their current four-year accord expires Sept. 14.

“All indications so far suggest that there is at least a shared intent to keep these organizations highly competitive in the marketplace,” Marchionne said.

An agreement needs to include workers sharing cost risks with the company, he said.

“This remains the key objective,” he said.

To contact the reporter on this story: Tim Higgins in Southfield, Michigan, at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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