Chrysler/Fiat CEO Sergio Marchionne sees a "substantial recovery" underway.
It may be struggling to reverse declining market share, quality problems and a poor public image, but Chrysler’s top executive says the bottom line is looking good and that a “substantial recovery is underway.”
With Chrysler in the black to the tune of $143 million for the first three months of the year, and on its way to produce another profit for the April-June quarter, the U.S. maker is looking to break even before taxes this year, says CEO Sergio Marchionne.
Meanwhile, the troubled maker’s new partner, Fiat, has outperformed industry expectations, posting a second-quarter profit of $146 million, which stands in sharp contrast to its year-earlier loss of $231 million.
“We’re beginning to see signs of substantial recovery from around the world,” says Marchionne, who serves as chief executive officer for both makers.
Fiat owns a controlling 20% stake in Chrysler, which could increase to 35% if it meets a series of targets set by the White House when it agreed to bail out the U.S. maker after its 2009 bankruptcy. The U.S. and Canadian governments hold a 13% stake, with the rest under control of the United Auto Workers Union, through its Voluntary Employee Beneficiary Association.
Fiat’s financial improvements reflect several factors. The maker saw solid gains in Brazil, one of the strongest of the new emerging automotive markets. And its commercial truck and construction operations, Iveco and CNH, benefited from improving economies around the world. (The Fiat board, meanwhile, has agreed to spin the two operations off in a new unit to be called Fiat Industrial.)
But there are signs that the hoped-for synergies between Fiat and Chrysler are beginning to appear. Notably, the two partners were able to save $191 million by bulk buying raw materials and parts, during the second quarter, leveraging their enhanced economies of scale, according to Marchionne.
The CEO projects similar benefits as its product development programs move forward because of the sharing of parts and components. The new Alfa Romeo Giulietta, for example, is paired with Chrysler next-generation midsize models.
For all of 2010, Fiat is projecting pre-tax earnings of up to 1.2 billion Euros.
Significantly, Chrysler is seeing improvements in its sales in nearly all of its markets. Volumes for the just-concluded second quarter rose 24% in the U.S. and 33% in Canada, while other markets outside North America saw a 9% increase in demand. The one setback was Mexico, where sales posted an 11% dip, to 17,000 vehicles. Worldwide, sales hit 407,000 for the quarter, a 22% gain.
Building overseas demand is a key part of the Fiat/Chrysler strategy – and for several good reasons. Chrysler has traditionally been the weakest of Detroit’s Big Three outside North America. And one of the goals set by the Obama Administration for Fiat to increase its stake in Chrysler is to boost those global numbers.