- Associated Press - Monday, January 31, 2011

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.

The IPO, Mr. Phillippi said, depends a lot on new compact and midsize models designed jointly by Chrysler and Fiat.

“It’s going to take a really good story because all the really important vehicles have been launched,” he said.

Chrysler’s gross debt also went up by $1.1 billion for the quarter to $13.1 billion as it issued a $1 billion note to a trust set up to pay health care costs for Canadian auto workers.

Chrysler, hampered by an aging model lineup through much of last year, used big expense cuts and sales to rental car companies to trim its losses and make it through the first half of last year. The company’s fortunes started to turn when the refurbished Jeep Grand Cherokee SUV went on sale in the middle of the year, and the company is now in the midst of rolling out the new or revamped models.

In the lead-up to bankruptcy, Chrysler’s old owners, private equity firm Cerberus Capital Management LP, slashed expenses to conserve cash. Since 2007, Chrysler has closed five factories and shed more than 35,000 workers, cutting nearly a third of its factory capacity. As a result, the company can come close to breaking even in a depressed U.S. auto sales market such as last year, when sales totaled 11.6 million.

But the cuts also left Sergio Marchionne, the Fiat CEO who was installed as Chrysler’s leader by the U.S. government, with no new products for much of the past two years. Only now is that situation starting to change, and Chrysler even has added back 5,000 workers to develop and build new vehicles.

“It can safely be said that what Chrysler delivered last year, on both the product and financial fronts, surpassed many expectations,” Mr. Marchionne said Monday in a statement.

Mr. Marchionne’s Fiat got a 20 percent stake in Chrysler when it took over management. Earlier this month, Fiat upped its stake to 25 percent by meeting a government requirement to build a fuel-efficient small engine in the United States. The stake could rise to 35 percent if Chrysler meets other benchmarks, and Mr. Marchionne said Fiat may buy another 16 percent to get 51 percent controlling interest in the company.

Currently, Fiat is the second-biggest shareholder in the company, which is almost 68 percent owned by a United Auto Workers retiree health care trust fund.

AP business writer Colleen Barry in Milan, Italy, contributed to this report.

 

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