Fiat Chrysler U.S. Unit's Profit Falls 89% on Costs for Recalls

  • Company set aside $848 million in quarter for future expenses
  • Strong sales for Jeep couldn't overcome strain on earnings

Fiat Chrysler Automobiles NV’s U.S.-based unit said third-quarter earnings tumbled 89 percent as recall costs eroded profit from booming Jeep sales.

Net income declined to $70 million from $611 million a year earlier, FCA US, the parent company’s North American unit, said in a filing Thursday. Revenue climbed 5.3 percent to $21.8 billion. Earnings excluding some items such as the recall costs rose to $743 million from $611 million.

Chief Executive Officer Sergio Marchionne, after creating FCA last year from the merger of Fiat and Chrysler, is spinning off the Ferrari division to help finance the expansion of Jeep and the resurrection of Alfa Romeo. Fiat Chrysler set aside $848 million in the quarter to help pay for future recalls in North America, where U.S. regulators assessed a record $105 million penalty and ordered it to buy back vehicles.

FCA U.S.’s modified earnings before interest, taxes, depreciation and amortization for the quarter rose 19 percent to $1.98 billion, according to the statement from the Auburn Hills, Michigan-based unit. Fiat Chrysler sales in the U.S. have risen for 67 straight months, in large part because of the strength of the expanding Jeep brand.

The parent company last week reported a surprise third-quarter net loss after one-time charges tied to the recall. The loss totaled 306 million euros ($339 million) versus net income of 174 million euros a year earlier, the London-based carmaker said Oct. 28 in a statement. Analysts surveyed by Bloomberg had estimated profit would rise. Adjusted earnings before interest and taxes rose to 1.3 billion euros from 968 million euros as revenue increased 17 percent to 27.5 billion euros.

Fiat Chrysler rose 0.1 percent to $14.27 at 10:57 a.m. in New York. The shares gained 23 percent this year through Wednesday.

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