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Chrysler cuts 4Q net loss as comeback continues
Question of the Day
DETROIT (AP) — An optimistic Chrysler narrowed its net loss significantly in the fourth quarter and forecast a net profit for 2011 as it continued a comeback from bankruptcy protection.
Chrysler, which has not turned a quarterly profit since leaving bankruptcy, said Monday that it lost $199 million from October through December, far better than the $2.7 billion it lost during the similar period of 2009.
There were some troubling signs in the fourth quarter, though. Chrysler had been cutting its losses during the first nine months of the year, but the fourth-quarter loss was more than double the $84 million it lost in the third quarter because of cost increases. Revenue for the quarter also dropped, falling 2 percent from the third quarter to $10.8 billion.
The company said it had increased advertising costs from launching 11 new models in the fourth quarter, and shipments were lower because factories had to switch from old models to newer ones.
But Chrysler, which is controlled by Italy’s Fiat SpA, remained positive in its outlook. It predicted it would make $200 million to $500 million in 2011, setting the stage for an initial public stock offering that could take place at the end of this year.
The U.S. government gave Chrysler $12.5 billion to get through bankruptcy in 2009. In exchange, the government got a 10 percent stake in the company. Chrysler still must repay $5.8 billion on the loans, and the government hopes to get the rest of its money back in the stock sale.
Karl Brauer, senior analyst for the Edmunds.com automotive website, said 16 new or revamped models, 11 of which hit showrooms toward the end of last year, have given Chrysler momentum to back its prediction of turning a profit.
“They certainly have more and more going for them all the time,” he said.
For the full year in 2010, Chrysler lost $652 million, compared with a staggering $8 billion loss in 2009, when it would have run out of cash without government help.
On an operating basis, excluding interest and taxes, Chrysler made $198 million from October through December, but that was $41 million less than it made in the third quarter. Global sales also were down 7 percent.
Joe Phillippi, a former Wall Street analyst who now is president of New Jersey-based AutoTrends Consulting LLC, said the increased loss from the third quarter to the fourth is not a sign of trouble. The difference, he said, can easily be explained by the cost of launching the new vehicles and rising commodity prices such as steel.
With predictions of U.S. auto sales rebounding this year, Chrysler should be able to post profits and pull off a stock sale late in the year, he said.
The company has four completely new models in the 300 big sedan, the Jeep Grand Cherokee and Dodge Durango SUVs and the Fiat 500 minicar, but even though its other models have been updated, they still appear old, and Chrysler likely will have to offer discounts to sell them against tough competition, he said.
“It’s going to take a really good story because all the really important vehicles have been launched,” he said.
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