Tag Archive | "Chrysler Group"

Ford Tops ‘Government Motors’ In Sales to U.S. After Avoiding Obama Rescue


Ford Motor Co., which eschewed a 2009 U.S. bailout, sold the most cars and trucks to the federal government this year for the first time since at least 2005, belying concerns the Obama administration would favor its government-owned competitors, Bloomberg reported.

The U.S. bought 21,980 vehicles directly from Dearborn, Michigan-based Ford in fiscal 2010, edging out Detroit-based General Motors Co. by about 540 vehicles, according to data obtained under a Freedom of Information request from the U.S. General Services Administration, which coordinates most federal vehicle purchases. Chrysler Group LLC sold 13,063 vehicles.

Ford’s gain under Obama’s presidency came after the administration engineered bailouts totaling $85 billion of GM and Auburn Hills, Michigan-based Chrysler and their finance units last year.

“There was a paranoia that the government was going to buy GM and Chrysler models to help them out because they had a foot in the door,” said Rebecca Lindland, an analyst at IHS Automotive in Lexington, Massachusetts. “There was a definite concern for Ford.”

The GSA has accounted for almost a quarter of sales of hybrids by U.S.-based automakers during Obama’s presidency, according to the agency data, helping Ford gain the edge over GM. Ford sold at least 11,066 hybrids to the U.S. in the past two years, compared with 3,316 for GM, which discontinued sales of its highest volume hybrid, the Chevrolet Malibu, last year.

“The GSA alternative-fuel vehicle guidelines emphasize higher fuel efficiency and reduced greenhouse gases,” Mike Moran, a Ford spokesman in Washington, said.

Ford’s Surge

Ford has boosted overall sales at twice the industry’s rate so far this calendar year and is on track to gain U.S. market share for a second year in a row — the first two-year increase since 1993, Moran said. The company yesterday reported a 20 percent gain in November sales, compared with GM’s 11 percent increase and Chrysler’s 17 percent.

Ford also picked up additional government sales of Fusion sedans, Ranger pickups and Explorer sport-utility vehicles in fiscal 2010, which ended Sept. 30. Chrysler’s Dodge Caravan minivan was the most popular government purchase from that automaker.

Ford trailed both GM and Chrysler in government sales as recently as 2006, before achieving a 92 percent increase in 2009. Government sales by all three companies fell in 2010 from the previous year — Ford’s by 22 percent, GM’s by 46 percent and Chrysler’s by 9 percent. GSA’s total purchases declined by 28 percent from 2009.

Top Models

The most popular government-bought model over the past three years is the Chevrolet Impala, the ninth best-selling model among consumers. The Chevy Tahoe SUV, often portrayed in movies with opaque tinted windows in government caravans, is fourth. Ford’s F-150 was the fifth best seller and the F-Series line of trucks had the highest volume for a group, the data show.

“We work through the GSA process to deliver the right vehicles for the right job,” said Greg Martin, a GM spokesman in Washington. “We expect other automakers do the same.”

The U.S. government buys 60,000 to 70,000 automobiles annually through the GSA, said Sara Merriam, a spokeswoman for the agency.

The shift from GM to Ford isn’t part of a specific government initiative, Merriam said.

“Industry response is a component of this,” Merriam said. “They have to bid to be considered and ultimately to be selected. Maybe Ford was the most active and aggressive.”

The GM and Ford automotive purchases in 2010 were among the 406,679 vehicles the GSA purchased in the past six fiscal years, or about $8.59 billion worth of cars, trucks, fire engines and ambulances, according to the data.

GSA Vehicle Costs

Government purchases during the six-year period were highest in fiscal 2009, as GM and Chrysler emerged from government- backed bankruptcies, totaling 89,380 units for a cost of $1.95 billion, the data show.

The GSA spent an average of $22,672 per vehicle over the past three fiscal years, ranging from $6,800 buses to $937,505 fire-fighting vehicles. The average price consumers paid was $28,508, according to vehicle-pricing website http://Edmunds.com in Santa Monica, California.

Ford Executive Chairman Bill Ford said on April 20, 2009, shortly before Chrysler and GM entered government-backed bankruptcies, that the moves might pose a competitive challenge for Ford. GM is the top-selling automaker in the U.S. and Ford is second this year. In 2008 and 2009, Ford was third behind Toyota.

‘Government Motors’

“We really don’t want to compete with a state-owned enterprise,” Ford said at the time. “Frankly, that’s probably not in anybody’s best interest, including the government’s.”

Outgoing GM Chairman Ed Whitacre said in August he wanted to shake off the stigma of being “government motors” as quickly as possible. GM raised more than $23 billion, mostly for U.S. and Canadian governments and a union health fund, selling common and preferred stock in its initial public offering Nov. 17 and in a second offering from banks last week.

The IPO, 16 months after bankruptcy, cut the U.S. stake to 33 percent from 61 percent.

It would be difficult for the government to show preference for an automaker, even one it owned, because of the structure of the U.S. bureaucracy, said Jeff Green, president of at JA Green & Co. LLC in Washington, who has a background in government contract law.

“The government is so disaggregated that it would be hard to favor one company over another,” he said. “I would have been really surprised if someone were able to game the system.”

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Chrysler Works to Improve Resale Values as Part of Turnaround


Chrysler Group LLC is working to raise the resale value of its vehicles, seeking to replicate its effort with the redesigned Jeep Grand Cherokee, to increase revenue from leases and improve the company’s image, Bloomberg reported.

Changes from the previous model and Chrysler’s volume and pricing strategy boosted the residual value of the Grand Cherokee’s four-wheel-drive version to 45 percent in the third quarter from 35 percent a year earlier, according to researcher ALG Inc. Residual values are projected resale values that determine buyers’ monthly lease payments.

Chrysler used testing that simulated three years of use while developing the Grand Cherokee to make it more reliable, and the vehicle’s third-quarter deliveries rose 35 percent, with a higher percentage coming from leases. The automaker is working to repeat that success with 15 other new or refreshed models, most of which begin production late this year.

“Beyond any shadow of a doubt, the leasing factor on the Grand Cherokee is the reason it’s having an outstanding sales rate,” said Dan Frost, a Chrysler dealer in suburban Detroit.

The Grand Cherokee’s percentage of sales from leases climbed to 25 percent in September from 2 percent in the same month last year, according to Edmunds.com.

Chrysler last week reported its best quarter since emerging from bankruptcy and raised its 2010 forecast. The third-quarter net loss narrowed to $84 million, and net revenue rose 5.2 percent from the second quarter to $11 billion, driven by Grand Cherokee sales, Chief Financial Officer Richard Palmer said.

The percentage of sales from leases on Chrysler’s four brands this year increased to 11 percent from 2.6 percent in 2009, while still trailing the industry’s 21 percent, according to Edmunds. Chrysler’s overall residual values rose to 50 percent in September from 36 percent a year ago, according to CNW Research. The industry average in September was 76 percent.

“We obviously make money leasing vehicles,” Palmer said on a Nov. 8 conference call. “The residual values on our vehicles are improving, especially as we improve, as we introduce the new products. So we expect that to grow.”

The new or refreshed vehicles include the midsize Chrysler 200 sedan, Dodge Durango and Fiat 500.

Resale value predictions haven’t yet been computed for most of Chrysler’s new vehicles, Fernando Ubeda, ALG data analytics manager, said in an e-mail this week.

Chrysler’s residual values had been hurt, in part, by last year’s uncertainty around the company, Jim Morrison, the head of Jeep product marketing, said in an interview in San Antonio in late October. Chrysler emerged from bankruptcy in June 2009 under the control of Fiat SpA.

None of Auburn Hills, Michigan-based Chrysler’s vehicles scored above average in Consumer Reports’ annual reliability survey released last month. Twelve of the 20 Chrysler models for which enough data were available for a rating scored below average, the magazine said.

The U.S. automaker spent extra time in the past year trying to improve the Grand Cherokee’s resale value, believing it would help drive sales through better leasing, executives said in interviews last month. As part of its increased testing, the company had 72 Jeeps driven nonstop for 36,000 miles, which represents about three years of use, said Philip Jansen, chief engineer on the Grand Cherokee.

“You start to see any issues,” he said. “It really helped just kind of pull out stuff that historically we would not have found for three or four months into production.”

The automaker met with ALG in March about plans for the vehicle, including specifications and production plans, then returned in May with the new Jeeps, Morrison said.

“After getting a chance to drive it, we felt the changes put the Grand Cherokee in a better competitive position,” Ubeda said in an e-mail explaining the Santa Barbara, California-based firm’s higher rating.

Chrysler is making similar efforts to win higher residual value ratings on the new vehicles, Morrison said.

“It’s really just good communications,” Morrison said. “We’ve mirrored it for all of the rest of the brands.”

The new Grand Cherokee began production in May and full volumes started arriving in showrooms during the third quarter, Chrysler officials said.

“I’ve never seen a product have this kind of sort of support from people who are in the business of evaluating vehicles,” Sergio Marchionne, chief executive officer of both Chrysler and Fiat, said on a conference call.

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Chrysler Narrows Its Loss and Raises Its Forecast


DETROIT — Chrysler, the smallest of the Detroit automakers, said that it had reduced its losses to $84 million in the third quarter and raised its financial forecast for the year even though it is still in the early stages of revamping its vehicle lineup, reported The New York Times.

Chrysler officials said the company was running ahead of the goals it laid out a year ago, though it has yet to earn a profit, and remained on track to go public in the second half of 2011. The third-quarter loss, primarily the result of interest paid on government loans, was less than half what it lost in the preceding quarter and the smallest since Chrysler’s short trip through bankruptcy in early 2009.

Before interest and taxes, the company earned $239 million, its third consecutive quarterly operating profit. Through the first nine months of 2010, Chrysler’s operations have earned $565 million.

It also forecast an operating profit of about $135 million in the fourth quarter and $700 million for all of 2010; executives previously said the company’s operations would break even or report a much smaller gain.

“What I think people underestimated, and maybe even myself, was that the cost reduction initiatives accomplished in bankruptcy were pretty significant,” said Van E. Conway, a partner with Conway MacKenzie, a consulting firm specializing in financial turnarounds that is based in Birmingham, Mich. “They learned a few lessons in this process that they’re not going to forget.”

Having shed much of its liabilities and slimmed down its operations in the reorganization, Chrysler’s biggest burden is interest payments to the American and Canadian governments, which it owes $7.4 billion. Chrysler has paid $899 million in interest this year, including $308 million in the third quarter, resulting in an overall loss of $453 million from January through September.

Chrysler’s chief executive, Sergio Marchionne, said in a conference call with analysts and reporters that the company had “our ducks lined up” for future profit. He said the company expected to hire workers in 2011, but could not say how many.

Even though Chrysler emerged from bankruptcy a month sooner than General Motors, Chrysler’s turnaround has progressed more slowly, largely because its vehicle lineup had less to offer. Chrysler also kept more of its government loans on its balance sheet as debt, whereas most of the money G.M. borrowed was converted into an equity stake held by the Treasury Department.

The Treasury owns 61 percent of GM but only 8 percent of Chrysler. GM already has repaid its outstanding loans to the government. Chrysler has said only that it would do so by 2014.

GM is preparing to have a public stock offering next week. On Monday, Marchionne said he expected the stock sale to happen in the second half of 2011 and that the company would be watching GM’s offering to gauge the market’s receptiveness.

“We’re going to learn a lot as that process goes forward, and we’ll do the right thing,” he said.

Chrysler still has considerable work to do in revamping its selection of cars and trucks, but it has shown significantly more promise under the control of the Italian automaker Fiat than in the years before its bankruptcy, when it was owned by a private equity firm that spent little on product development. Fiat owns 20 percent of Chrysler, and Marchionne is chief executive of both companies.

Chrysler’s sales in the United States were up 16.5 percent in 2010 through October, compared with a 10.6 percent gain across the auto industry. Its market share rose to 9.6 percent, from 8 percent a year ago.

Sales of the redesigned Jeep Grand Cherokee, a model whose success is crucial to the company, nearly quadrupled last month in the United States. Chrysler is working to overhaul more of its models to make them more competitive, a process that takes years.

Within the next few months, 165 specially selected Chrysler dealers across the country will begin selling the tiny, fuel-efficient Fiat 500 car.

“We are committed to ensuring that every new vehicle this company launches has the same high quality and technological advances as the Jeep Grand Cherokee,” Marchionne said.

The Grand Cherokee helped Chrysler cut its net loss by more than half from the second quarter to the third and increase revenue 5.2 percent, to $11 billion.

Chrysler generated $31.2 billion in revenue in the first nine months of 2010 and on Monday predicted that revenue in the fourth quarter would be roughly the same as in the third quarter.

Chrysler now expects cash flow to be $500 million positive for the full year, rather than the $1 billion negative it had forecast previously.

The company said it had $8.3 billion in its cash reserves as of Sept. 30.

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Marchionne: ‘Successful Transformation’ Under Way at Chrysler


DETROIT – Chrysler Group LLC has laid the “groundwork for a successful transformation, CEO Sergio Marchionne said Monday.

Marchionne, CEO of both Chrysler and Fiat, addressed workers in a message obtained by Bloomberg on the day the U.S. automaker raised its operating profit forecast for the year and said its net loss narrowed to $84 million in the third quarter.

“The changes we are bringing about are beginning to enter into the DNA of the company,” Marchionne said in the message. “You can tell by how the language and tone of conversations have changed, by the long hours people are working, and by the way teams form and function.”

Shawn Morgan, a Chrysler spokeswoman, confirmed the memo was sent.

“We knew when we began this reconstruction process that the road back would be a long one,” Marchionne said. “We’ve hit some key milestone and we’ve made progress in important areas. We have laid the groundwork for a successful transformation. I ask you to continue to have faith in your leadership.”

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Chrysler’s Q3 Loss May Be Narrowest Since Bankruptcy


Chrysler Group LLC, the automaker controlled by Fiat SpA, may report its smallest quarterly loss since emerging from bankruptcy protection, helped by the biggest sales gains among U.S. automakers.

The automaker may report a third-quarter net loss of $129 million Nov. 8, based on the average estimate of four analysts surveyed by Bloomberg. That would be less than the company’s $172 million second-quarter loss and a sign Chrysler is strengthening almost 18 months after emerging from bankruptcy.

“Chrysler may prove to be one of 2011’s most surprising success stories,” Stuart Pearson, an industry analyst with Morgan Stanley, said in a note to investors on Nov. 3. He wrote that he expects a “solid if not spectacular quarter.”

The results for the three months through September will be better than for the first two quarters of the year, Chief Executive Officer Sergio Marchionne said in September, according to remarks posted on the company’s website.

Chrysler’s operating profit may have been $172 million, according to the average of four analysts’ estimates. That would be a 6 percent decline from $183 million in the second quarter.

“We already know that we will make more money in the third quarter than we have made in any quarter so far,” according to the text of Marchionne’s Sept. 14 speech to Chrysler dealers.

Chrysler, which had a $143 million operating profit in the first quarter, already has topped its forecast for as much as $200 million in operating profit for all of 2010.

“Chrysler might have continued to show a stronger cash flow generation than the business plan expectations,” Monica Bosio, an analyst with Banca IMI in Milan, wrote in a note Oct. 25.

During the third quarter, Chrysler sold 293,000 cars and trucks in the U.S., a 20 percent increase from the same period last year, according to Autodata Corp., a Woodcliff Lake, New Jersey-based researcher.

General Motors Co.’s U.S. sales in the quarter declined 5 percent, while Ford Motor Co.’s rose 7.9 percent, according to Autodata.

Ford reported a $1.69 billion profit for the third quarter. GM, which also went through a U.S. government-backed bankruptcy last year, reported preliminary net income of $1.9 billion to $2.1 billion Nov. 3 and said it will hold a conference call to discuss the results Nov. 10.

Chrysler may be becoming too reliant on fleet sales, said Jesse Toprak, vice president of industry trends at TrueCar.com, an automotive pricing website based in Santa Monica, California. The company’s sales to corporations, governments and rental car companies made up 37 percent of its U.S. volume during the third quarter, according to TrueCar.

Until the U.S. automaker’s relationship with Fiat can result in new products, Chrysler will be “highly dependent” on fleet and rental sales, Toprak said. The industry average during that period was 17 percent.

“Anytime you go over 25 percent in total fleet and rental sales that typically starts to diminish overall residual values and has a negative impact on brand image,” Toprak said.

While Chrysler’s reliance on fleet sales shrank from 41 percent in the second quarter, it is higher than the 20 percent level from a year ago, according to TrueCar.

Chrysler, which doesn’t release its mix of retail and fleet sales, has defended deliveries to those customers.

“They pay cash for their vehicles just like anyone else,” Fred Diaz, Chrysler’s lead sales executive, said during an interview on Oct. 22 in San Antonio.

Marchionne, who also is CEO of Fiat, said he objects to those who classify fleet sales as “dirty.”

New Vehicles

Chrysler is relying on fleet customers and lower incentives until the company can introduce new vehicles, said Jessica Caldwell, an analyst with Edmunds.com in Santa Monica, California.

“It seems like they are bridging to a point when they have the product to be more aggressive,” Caldwell said.

Purchasing data from the Los Angeles Department of Water & Power shows how fleet sales can mean lower prices for automakers. The utility purchased 400 of the 2009 Dodge Avenger SXT sedans last year at an average price of $14,868.69, according to the city-owned power provider. The average transaction price of that model for retail customers was $19,684 a year ago, according to Edmunds.

Marchionne has reduced U.S. consumer discounts, with incentive spending falling 21 percent from a year earlier to $3,125 per vehicle during the quarter. Chrysler’s retail business has improved with the introduction the redesigned Jeep Grand Cherokee, Caldwell said.

“It’s good to have a vehicle that’s out there selling in the market, over 10,000 units, and is not really dependent on incentives,” Caldwell said. Last month, U.S. dealers sold 12,721 Grand Cherokees.

The average transaction price of a Chrysler vehicle during the third quarter was $29,350, 6.4 percent more than last year, according to Edmunds.

The U.S. accounted for 73 percent of the company’s global sales, which rose 17 percent from a year earlier to 401,067, according to the company.

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Chrysler’s Marchionne Looking at Multiple Sources to Reduce Loan Payments


Chrysler Group LLC, which is considering refinancing loans from the U.S. and Canadian governments, is looking “at a variety of capital sources,” CEO Sergio Marchionne said.

Marchionne, who also is CEO of Fiat SpA, has said interest on the $7.4 billion U.S. and Canadian government loans has kept Chrysler from earning a profit this year, reported Bloomberg.

“We’re on good track to eventually get rid of this problem,” Marchionne told reporters today in Rome.

Chrysler has contacted banks about borrowing money before a possible initial public offering next year, two people familiar with the effort said last month. Marchionne previously said Chrysler’s board is looking to refinance the government loans as it considers the company’s proper debt level.

The Auburn Hills, Michigan-based automaker has said its effective interest rate on money borrowed from the U.S. government is as high as 14 percent and as high as 20 percent on the Canadian loans.

“We’re working on solutions that are designed to provide stability in the capital structure of Chrysler in the medium to long term,” Marchionne said today. “It’s a relatively complex discussion.”

Chrysler could lower its interest payments by $400 million by refinancing the debt, Stuart Pearson, an analyst with Morgan Stanley, said in a note to investors on Nov. 3.

“We believe refinancing in the capital markets may be possible for Chrysler by mid-2011, by which time it should have a 12-month track record of profitability and cash generation,” Pearson wrote.

Chrysler is scheduled to release third-quarter results on Nov. 8. The company’s second-quarter net loss narrowed to $172 million from $197 million in the first three months of the year. Chrysler ended the second quarter with $7.84 billion in cash.

The U.S. automaker needs to keep a minimum cash balance of about $3 billion for working capital, Moody’s Investors Service said in a November 2009 note.

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