November 8, 2010 / 4:13 PM / 8 years ago

UPDATE 5-Chrysler boosts 2010 outlook, vows to 'fight harder'

* Sees 2010 oper profit of $700 mln vs $200 mln forecast

* Q3 revs $11.02 bln from $10.5 bln

* Chrysler says results are better than it forecast (Adds DOE loans, auto finance)

By Deepa Seetharaman

DETROIT, Nov 8 (Reuters) - Chrysler Group LLC forecast an operating profit this year, thanks to cost cuts, but chief executive Sergio Marchionne said the automaker had to “fight harder” to revive its image and seize market share.

Chrysler projected a $700 million operating profit for 2010 after stripping out financing costs tied to its government-funded bankruptcy. It previously projected it would break even or earn $200 million on that basis.

Chrysler also pinned its 2010 revenue forecast at around $42 billion, in the middle of its earlier range of $40 billion to $45 billion.

Jesse Toprak, an industry analyst at, said it was encouraging for Chrysler’s longer-term turnaround that the automaker had managed to increase operating profit despite relatively high incentives and fleet sales.

The automaker has said it plans a public offering of shares in the second half of 2011. Chrysler’s larger rival, General Motors Co [GM.UL], plans to go public later this month.

“They’ve had a nice trajectory of improvement in their financials, which is good heading into an IPO,” Toprak said. “I think the better news is that they have an influx of new cars coming.”

Chrysler was on the brink of liquidation in 2009 before a U.S. government-funded bankruptcy slashed its operating costs and gave majority ownership to a union-affiliated trust fund and management control to Fiat SpA FIA.MI.

The company is introducing 16 new or updated models, including the Fiat 500 subcompact. U.S. dealer inventory is expected to rise in the fourth quarter to support the sales of the new products.

Marchionne said he was encouraged by trends heading into 2011, but said the automaker still had a lot to prove.

“We got a bloody nose on the way into the recession and I’m not sure we got it all back on the way out,” Marchionne said during a call with analysts. “So we need to fight harder.”


Chrysler emerged from a bankruptcy brokered by the Obama administration last June facing skepticism from some analysts and government officials about whether it could survive.

One year into a five-year turnaround plan, Chrysler reported a net loss of $84 million, compared with a net loss of $172 million in the second quarter.

Excluding $308 million in interest on loans and other expenses, the company posted an operating profit of $239 million, its third consecutive profit on that basis. Revenue rose to $11.02 billion from $10.5 billion in the second quarter.

Chrysler expects to receive at least $3 billion in U.S. Energy Department financing to help make more fuel efficient vehicles, loans that would help it reshuffle its balance sheet and get out from under the steep repayment terms of taxpayer-financed assistance it received in 2009.

Third-quarter sales were boosted by Chrysler’s new Jeep Grand Cherokee, the first of its 2011 models to come out of the gate. Marchionne said the automaker would develop other vehicles based on the Jeep Grand Cherokee platform.

Chrysler’s U.S. sales rose 17 percent through October, compared with an 11 percent gain in industrywide sales.

Despite Chrysler’s progress, it has relied heavily on sales to rental-car agencies, which typically carry a lower margin than showroom sales to consumers.

In the third quarter, vehicle sales slipped about 1 percent to 401,000 units due to lower fleet volumes in the United States and Canada, Chrysler said.

Chrysler does not disclose what percentage of its overall sales come from fleets, but industry estimates pin it at around 40 percent.

Its average incentive spending dropped to $3,900 per vehicle from $4,200 in the second quarter. But the average price of its cars fell slightly to $27,300 from $27,400.


Chrysler has been reporting results for the past four quarters in preparation for a return to public markets.

In a sign of progress, Chrysler said about 85 percent of its dealers were now profitable — the highest level since 2000, the industry’s last boom year. Chrysler cut almost one quarter of its U.S. dealers.

Chrysler now projects free cash flow of $500 million.

Earnings before interest, taxes, depreciation and amortization for the year are expected to be $3.3 billion, up from its earlier outlook of $2.5 billion to $2.7 billion.

The company relied on the U.S. market for 73 percent of its sales in the third quarter. Its U.S. market share rose to 9.6 percent from 9.4 percent in the second quarter.

Chrysler said it had clinched a tie-up with US Bancorp (USB.N) to provide vehicle financing for its customers, an area where the automaker has lagged its larger rivals.

The automaker also has a relationship with Ally Bank, formerly known as GMAC, for vehicle financing. However, it no longer has a captive finance unit like those of its rivals such as Ford Motor Co’s (F.N) credit unit that has been a source of strong profits in recent quarters. (Reporting by Deepa Seetharaman; Editing by Maureen Bavdek, Richard Chang and Gunna Dickson)

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