Chrysler Quarterly Profit Increases 22% on Grand Cherokee

Chrysler Group LLC, the U.S. automaker controlled by Fiat SpA, said third-quarter profit rose 22 percent on higher demand for Jeep Grand Cherokee sport-utility vehicles and Ram pickups.

Net income climbed to $464 million from $381 million a year earlier, the Auburn Hills, Michigan-based automaker said in a statement today. Sales advanced 13 percent to $17.6 billion. Fiat separately today lowered its profit target for 2013 after sales dropped in Brazil and on losses in Europe.

Sergio Marchionne, chief executive officer of both companies, has been relying on Chrysler’s cash and its 42 straight monthly U.S. sales gains as Turin, Italy-based Fiat has struggled through Europe’s prolonged economic slump.

“I’m surprised how good profitability is,” Richard Hilgert, an analyst with Morningstar Inc. in Chicago, said in an interview. “That’s a nice swing in profitability and it shows the volume leverage you’re supposed to get when volumes go up.”

Through September, Chrysler’s deliveries in its home market gained 8.5 percent to 1.36 million cars and light trucks, helped by a 23 percent gain for Ram, 15 percent for Grand Cherokee and a sevenfold increase in deliveries for the Dodge Dart, which debuted in mid-2012.

Fiat shares fell as much as 5.7 percent to 5.50 euros and were down 3.2 percent at 4:04 p.m. in Milan trading. The stock has climbed 48 percent this year, valuing the company at 7.04 billion euros ($9.7 billion).

Merger Work

Marchionne has been working for four years to combine Chrysler and Fiat into an automaker better able to compete on a global scale with the likes of General Motors Co., Volkswagen AG and Toyota Motor Corp. Fiat owns 58.5 percent of Chrysler and wants to acquire the rest from a United Auto Workers’ retiree health-care trust, which acquired the stake during the U.S. company’s 2009 bankruptcy.

The trust and Fiat have been unable to agree on a price for the Chrysler stake. The retiree fund last month forced Chrysler to file for an initial public offering of stock. The trust faces $3.1 billion in unfunded obligations, according to a financial statement issued this month.

Fiat has the right to acquire the stake for $4.25 billion plus 9 percent annual interest calculated from January 2010. Marchionne is seeking to buy for much less than that. He said last month the trust “should buy a ticket for the lottery” if it wants at least $5 billion for its holding.

UBS Report

Chrysler’s value has climbed to $13.5 billion, UBS estimates, as industrywide U.S. auto sales head toward their best year since 2007. Based on the UBS estimate, the retiree trust’s 41.5 percent stake would be valued at $5.6 billion.

Fiat’s full-year trading profit, or earnings before interest, taxes and one-time gains or costs, will miss an earlier forecast by as much as 13 percent, the automaker said today in a statement. Third-quarter earnings on that basis fell 9.4 percent to 816 million euros. Sales rose 1.4 percent to 20.7 billion euros.

The company’s net income gained 11 percent to 189 million euros. Excluding Chrysler, Fiat would have reported a loss of 247 million euros.

Fiat rescued Chrysler through a government-brokered alliance in 2009. Marchionne obtained control of Chrysler without paying cash by pledging Fiat’s vehicles, technology and managerial expertise.

Since then, Chrysler has emerged as the financial engine of the Fiat-Chrysler alliance, reporting nine consecutive profitable quarters. Without Chrysler, Fiat would have reported a loss for 2012.

Forecast Affirmed

Chrysler today reaffirmed its July forecast of an operating profit of $3.3 billion to $3.8 billion, compared with a previous target of about $3.8 billion. Operating profit was $2.9 billion last year. The company predicted deliveries of about 2.6 million vehicles.

Chrysler reported $11.5 billion in cash as of Sept. 30, a decrease of about $450 million from a year earlier. The decline was caused by the cost of holding new Jeep Cherokees while Chrysler resolved a software issue with the new engines and nine-speed transmission.

Chrysler shut its Toledo, Ohio, factory in August 2012 to retool for Cherokee production, which didn’t begin until late June.

“We’ve been out of the market way too long,” Marchionne said on a conference call today with analysts and investors to discuss earnings results.

Chrysler this month began shipping the Cherokee to dealers. The Cherokee is Chrysler’s entry in the fast-growing compact SUV market.

“These results are telling you the Grand Cherokee and the Ram have been terrific products,” Matt Stover, an analyst with Guggenheim Securities in Boston, said in a telephone interview. “Now we need the new cars to contribute in an incremental fashion and the most significant of those is the Cherokee.”

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