Chrysler Posts $199 Million Loss as Shipments Fall
Chrysler Group LLC, the U.S. automaker operated by Fiat SpA (F), reported a $199 million fourth-quarter net loss that was its largest of the year as the company shipped fewer vehicles while introducing new models.
The loss widened from the third-quarter’s $84 million deficit, Auburn Hills, Michigan-based Chrysler said today in a statement, and compares with a $2.69 billion loss a year earlier that included a $2.05 billion charge related to retiree health care. The average estimate of three analysts surveyed by Bloomberg was for a fourth-quarter loss of $99 million.
Chief Executive Officer Sergio Marchionne introduced 11 redesigned or refreshed vehicles in the fourth quarter, including the Dodge Durango sport-utility vehicle and Chrysler 200 midsize sedan. The company shipped 382,000 cars and trucks in the last three months of the year, down 6 percent from the third quarter.
“It can safely be said that what Chrysler delivered last year, on both the product and financial fronts, surpassed many expectations,” Marchionne, who also heads Fiat, said in the statement. He has said he wants Chrysler to hold an initial public offering during the second half of the year.
Modified operating profit, a term Chrysler introduced this quarter that excludes items such as taxes, interest and pension-related costs, was $198 million in the fourth quarter. Modified full-year operating profit of $763 million exceeded Chrysler’s revised forecast of about $700 million.
Revenue fell 2.3 percent from the third quarter to $10.8 billion. The company said today that 2011 net revenue will be greater than $55 billion and modified operating profit will exceed $2 billion. Chrysler will earn $200 million to $500 million in net income and generate more than $1 billion in free cash flow, the company said.
Chrysler said in a five-year plan released in November 2009 that operating profit this year would be $1.6 billion to $2.4 billion on sales of $52.5 billion.
“Their strong 2011 guidance suggests confidence in the traction of their new product offering -- the first real indicator of that so far,” Stuart Pearson, an analyst with Morgan Stanley in London, said in an e-mail. “We also suspect Chrysler is leaving plenty in the tank to beat its” 2011 guidance.
Chrysler’s global sales rose to 1.5 million in 2010, the company said. Earlier this month, Marchionne said Chrysler could now break even with 1.5 million vehicle sales, down from its previously stated breakeven point of 1.65 million.
Marchionne told workers in a message today that all eligible salaried and union workers will receive bonuses based on the company’s “2010 achievements.”
“It is a performance payment in recognition of what I consider to be an extraordinary performance by the industrial system of Chrysler in 2010,” he said on a call with analysts and reporters. “The way in which this house has responded to the challenge of introducing 16 cars in 12 months is something I have never seen, and, hopefully will never see again.”
Unionized workers bonuses will average $750, Mike Palese, a company spokesman, said in an e-mailed statement. He declined to say how much salaried workers would get.
Ford Motor Co. (F), which posted a 2010 net profit of $6.56 billion last week, announced that it will pay its 40,600 U.S. hourly workers profit sharing checks averaging $5,000.
Chrysler’s U.S. growth in the past year was in part fueled by sales to so-called fleet customers -- corporate, government and rental-car company buyers.
Fleet sales in the fourth quarter ended in line with the industry average, Fred Diaz, head of Chrysler sales, said in an interview this month.
“As the year progressed, our percentage of fleet sales dwindled significantly,” he said, while declining to give a specific number. He said Chrysler’s goal is to be at or below the industry average of fleet sales.
Chrysler’s fleet sales made up 35 percent of its deliveries during the fourth quarter, down from 46 percent a year earlier, according to TrueCar.com, a Santa Monica, California-based website that tracks auto industry sales. During the third quarter, fleet sales were 36 percent. The industry average was 20 percent last year, according to TrueCar.
“As they pull back on fleet, it’s going to look like overall sales are decreasing,” Jeremy Anwyl, chief executive officer of Edmunds.com, said in an interview.
Chrysler’s average spending on customer discounts fell to $3,210 during the past year from $4,131 in the previous year, according to Santa Monica-based Edmunds.
“They’ve been using fleet as an alternative to incentives,” Anwyl said. “Instead of trying to discount cars to consumers, they’ve been selling fleet, probably the best of tricky choices.”
Chrysler leased about 8 percent of the vehicles it sold in the U.S., and that rate will increase as the company introduces new products, Chief Financial Officer Richard Palmer said.
The industry leasing average last year was 19 percent, according to TrueCar.
Marchionne has been working to reduce incentive spending since taking over the company in 2009. Fiat gained a 20 percent ownership stake in Chrysler when the U.S. automaker emerged from bankruptcy in June 2009.
The Italian company increased its ownership to 25 percent this month after Chrysler met one of three performance milestones. Marchionne has said he wants to meet the other two goals to increase the stake by an additional 10 percentage points this year.
He also has said Fiat has the financial liquidity available to boost the stake by an additional 16 percent and hopes to do so in 2011.
Fiat shares gained 10.5 cents, or 1.5 percent, to 7.09 euros today in Milan.
The United Auto Workers union’s retiree health-care trust is Chrysler’s largest owner, holding a 64 percent stake. The U.S. Treasury holds 9.2 percent and Canadian governments hold 2.3 percent.
The automaker’s interest expense was $329 million for the fourth quarter and $1.23 billion for the year. The face value of Chrysler’s debt to the U.S. and Canadian governments is about $7.46 billion, according to the company’s third-quarter financial statement.
Governments generally shouldn’t be shareholders in private enterprises, and Chrysler needs to repay its obligations to become “normal” again, he said.
The automaker’s total debt increased by $1.1 billion to $13.1 billion because it issued promissory notes to an independent health-care trust that’s taking responsibility for certain Canadian Auto Workers’ retiree benefits, Chrysler said.
Marchionne said today that he hopes to get $3.5 billion in loans from the U.S. Department of Energy. Chrysler previously said it hoped to get $3 billion in loans.
Chrysler had a negative free cash flow of $819 million during the final quarter. That’s less than the $1.49 billion that Morgan Stanley’s Pearson estimated the company would consume in the quarter.
The automaker had a positive cash flow of $1.36 billion for the year, which was more than $2 billion better than its original forecast, the company said.
Chrysler said it had $7.35 billion in cash at the end of the quarter, a $913 million decrease from the end of the third quarter. The drop was primarily because of working capital needs related to reduced output during vehicle introductions, the company said.
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