Chrysler could very well pull off an operating profit in 2010, says CEO Sergio Marchionne, but it will take an 18% jump in sales during a year with little new product.
Though it won’t begin its anticipated product renaissance for more than a year, Chrysler could still pull off an unanticipated profit for 2010, CEO Sergio Marchionne suggested during a Tuesday meeting with reporters at the North American International Auto Show.
After hitting “rock bottom,” Marchionne, who also serves as chief executive of Fiat, said he expects 2010 to mark the beginning of a long, slow recovery for both the U.S. auto industry and for Chrysler.
“We’re out,” he said, referring to the worst downturn the American car market has seen since the Great Depression. “We just need to be focused and to be sure we don’t fall back on our bad habits.”
Having become lean and focused – and after having dumped billions in debt and bad assets during the two-month journey through bankruptcy, last spring – Marchionne said Chrysler could very well pull off a real profit in 2010. And it would be an operating profit, not an account trick where the company didn’t include such minor inconveniences as taxes.
“The magic number is 1.65 million,” said the Italian-born executive, who spent much of his life across the border, in Canada.
That figure is for worldwide sales. In the U.S. alone, Marchionne added, Chrysler would need to sell 1.1 million cars, trucks and crossovers. Compared to what the automaker had done during much of the last decade, that wouldn’t seem like much. But Chrysler lost a lot of ground during its spiral into Chapter 11, and last year reported sales of just 931,000 vehicles in the U.S. and 1.3 million globally, so picking up 18% at home won’t be easy considering most analysts expect the U.S. market to grow by perhaps 5% in 2010.
Marchionne’s bullish forecast was tempered by a generally cautious tone during his hour-long meeting with journalists, at the 2010 Detroit Auto Show. That reflects the fact that the company has suffered so many setbacks since it formed the so-called “merger of equals” with Germany’s Daimler, in 1998. And the subsequent sale to equity giant Cerberus Capital Management only made things worse, according to Marchionne.
“We do have a credibility issue,” he said, adding that the company will have to prove it can achieve a turnaround, not simply “threaten to succeed.” That, Marchionne explained, is why he decided not to stage one of the lavish product previews Chrysler had long been known for during the North American International Auto Show.
The company will have very little new product, other than the next-generation Jeep Grand Cherokee, to bring to market in 2010, Marchionne acknowledged, so it wouldn’t be credible to be holding a splashy event. Chrysler does have a large exhibit at the auto show, however, to present its current line of wares to the public.
Chrysler’s lack of credibility outside was matched by a loss in direction inside the company. There was, said Marchionne, “a period of time with no sense of direction” nor did Chrysler understand “the value of their brands.” But “the most damaging thing,” he added, was the loss of a “sense of pride.”
Somewhat surprisingly, Marchionne believes the bankruptcy may have actually been a good thing. It helped Chrysler shed bad assets and eliminate billions in bad debts, of course, but “The process drastically and dramatically changed peoples’ lives,” suggested the CEO. “Being a survivor changes your head set. U start enjoying things other people take for granted.”
While the decade-long marriage to Daimler might have been a disaster, Marchionne insisted that Chrysler’s new situation, effectively functioning as a part of the Fiat empire, will be good for both companies. “Fiat can help Chrysler grow,” Marchionne asserted. But he also said the U.S. maker will be able to help its Italian partner take on the world., as well.
During his media roundtable, Marchionne said Chrysler will meet with some of the 789 dealers it decided to terminate as part of its bankruptcy reorganization and very well may bring some back into the system. But he continued to defend the process by which the cuts were made and said he didn’t see a significant number of the dealer cuts being reversed.
That’s in sharp contrast with comments made, last week, by General Motors Chairman Ed Whitacre, who admitted there were “mistakes” made in GM’s firing of nearly 2,000 retailers. That automaker is beginning an arbitration process that could results in “hundreds” of dealers being reinstated, said Whitacre.
Marchionne also clarified comments made last year about repaying the U.S. Treasury for money it loaned Chrysler to survive. The cash provided prior to bankruptcy was effectively left behind with the abandoned assets of the old company, Marchionne said. Government loans provided after the bankruptcy will not only be repaid, but taxpayers will be paid back “with interest,” he asserted.