Chrysler Still in Loss Territory

The struggle continues for Chrysler Group LLC having reported a net loss of $172 million for its second quarter ended June 30, 2010. However, an improvement in operating profit was instrumental in narrowing down the loss from the $197 million reported in the first quarter of fiscal 2010. The Detroit-based auto maker did not report its second quarter fiscal 2009 results.

Revenues increased 8.2% sequentially to $10.5 billion in the quarter. Worldwide vehicle sales hiked 22% to 407,000 units in the reported quarter with increased volumes across all brands as brand repositioning efforts and investments in marketing campaigns increased traffic.

Operating profit lifted $40 million sequentially to $183 million driven by volume increases, which were somewhat offset by the impact of the Jeep Grand Cherokee changeover and moderate increases in incentive programs.

Financial Position

As of June 30, 2010, Chrysler’s had cash and cash equivalents of $7.84 billion up from $7.37 billion as of March 31, 2010. The company still has an additional $2.3 billion available through U.S. Treasury and Canadian governmental loan agreements bringing total available liquidity above $10 billion.

Gross industrial debt as of June 30, 2010 remained at $11.2 billion and net Industrial debt decreased to $3.4 billion, as a result of positive cash flow of $474 million.


The company maintained its fiscal 2010 outlook until it announces its third quarter fiscal 2010 earnings. Net revenues are expected to range between $40 and $45 billion. As regards its operating profit, the company expects to break even with the upper end of its expectation being $200 million. Modified EBITDA is expected to range between $2.5 – 2.7 billion. The company expects a free cash outflow of $1.0 billion.

Based on expectations that Chrysler will be able to leverage Fiat’s international distribution networks Chrysler expects that its European and South American sales will double between 2010 and 2011, to nearly 200,000 units.

Our Take

U.S. auto sales are showing signs of improvement in 2010 as evident from the performance of other automakers. Ford Motor Co. (F) recently reported second quarter net income of $2.6 billion or 61 cents compared with $2.3 billion or 69 cents in the year ago quarter.

General Motors Co. (MTLQQ) is expected to report a net profit when it discloses its second-quarter results on Thursday, August 12, 2010. In its first quarter fiscal 2010, the company had reported revenue of $31.5 billion, operating income of $1.2 billion and earnings per share of $1.66.

July sales for both Ford and General Motors were up by 5%. The increase at Ford was driven by the success of its new vehicles as against a tough prior-year comparison, due to a surge in “Cash for Clunker” sales. At General Motors, July sales for its Chevrolet, Buick, GMC and Cadillac brands increased by a combined 25%.

In contrast, Chrysler has still not recovered from losses. Even though the company reported an increase in revenues, a point of concern is that Chrysler is using sales to rental car companies to keep its momentum. Rental company sales are traditionally less profitable then sales to retail customers.

Further, the company’s product portfolio is dominated by aging large cars and pick-up trucks. The automaker is making attempts to overhaul the line-up with refreshes. Its line-up of 16 all-new or refreshed products launched in the back half of 2010 include the all-new Chrysler 300, Dodge Charger, Dodge CUV, the iconic Fiat 500, and the Chrysler Sebring replacement. However, most of the upgraded vehicles won’t arrive at dealerships until later this year.

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