Chrysler revenue slumps on new model launches
DETROIT/MILAN (Reuters) - Carmaker Fiat's FIA.MI first-quarter profit slumped more than expected as its U.S. unit Chrysler's sales suffered from the phase-out of the Jeep Liberty pending a new model launch.
"We knew we would be limping in the quarter. I just didn't think I was going to limp that much," said Sergio Marchionne, chief executive of both Chrysler and its parent Fiat, on a conference call with analysts and reporters.
Marchionne in January warned that Chrysler's first-quarter earnings would be down from a year earlier because of the expense of product launches and the fact that the Jeep Liberty SUV was no longer being produced.
The Liberty's successor, the Jeep Cherokee, was not sold in the first quarter and will not be sold until the third quarter.
But Marchionne said that there were delays in the production launches of the Jeep Grand Cherokee and RAM heavy duty trucks, which he said are among the highest profit-makers.
Fiat, which took control of the third-largest U.S. automaker when Chrysler emerged from a government-sponsored bankruptcy four years ago, stood by its financial forecasts for 2013 despite a worsening European car market and lower revenue in the U.S. for the first quarter.
Fiat sees full-year revenue in the 88 billion euro to 92 billion euro range, trading profit between 4 billion and 4.5 billion euros, and net industrial debt of about 7 billion euros.
Analysts had expected a weak quarter for the combined group, and the results came in below consensus.
Trading profit was 618 million euros, below the 720 million euros forecast by 21 analysts published on Fiat's website. Pre-tax profit came in at 160 million euros, compared to a forecast of 300 million euros by analysts.
At Chrysler, first-quarter net income fell 65 percent to $166 million from $473 million a year earlier. Net revenue slipped 6 percent to $15.4 billion.
Net debt was 7.10 billion euros, in line with forecasts, and higher than the 6.5 billion euros at the end of 2012.
Citi Research analyst Harald Hendrikse said the quarter's results again highlight Fiat's difficult debt issue.
"With debt at current levels, the company cannot compete in this industry longer term against giants like Volkswagen AG (VOWG_p.DE) spending 16 billion euros on capital expenditures and research and development," said Citi in a note.
NARROWING EUROPEAN LOSSES
Fiat's European losses before interest and tax narrowed to 111 million euros, from a year-ago loss of 170 million euros, despite a 10 percent drop in industry sales in the region. Marchionne said he expects Fiat to narrow its operating losses in Europe further in 2013.
Fiat outperformed a dismal European car market with the launch of the new Fiat 500L small car, the company said.
Fiat, like competitors Ford (F.N), General Motors (GM.N) and Peugeot (PEUP.PA), is losing money in Europe as buyers delay purchases of new cars until the economy improves. Unlike rivals, however, Fiat has decided to invest in retooling its idled factories to ramp up volumes of higher-margin cars for export rather than close plants.
The company aims to break even in Europe by 2015 or 2016.
Chrysler said it will increase vehicle shipments in the second quarter by at least 13 percent from the first quarter, to 650,000 vehicles up from 574,000 in the first quarter.
Marchionne said the Jeep Grand Cherokee, now that its launch delays are over, will show strong April sales, and that the biggest boost in Grand Cherokee sales will show in the third quarter.
Marchionne said in the coming quarters Chrysler will better match up production and retail sales performance.
"Close your eyes, plug your nose and move it on from here," said Marchionne to analysts on a conference call.
COMING TO AMERICA?
Looking further out into the future, Marchionne said he hopes to merge Fiat and Chrysler into one group and he hinted strongly that the combined company will be headquartered outside of its native Italy.
Many observers expect the merged company to be headquartered where Chrysler is now, in Auburn Hills near Detroit, and to be listed on the New York Stock Exchange and in Italy.
Marchionne said the merged company would be headquartered in the geographical region that has "the adequacy of capital markets (necessary to) support our operations going forward."
Marchionne said that "Europe is becoming a less and less relevant fact in the scheme of things" as its share of the global auto market diminishes.
Italy has been a particularly weak player in a weakening region for auto sales.
"Italy in 2012 represented 10 percent of the overall sales of this (Fiat) Group," aid Marchionne. "And I think it's a stark reality for someone who has been a Fiat aficionado all his life. This is a different house. It looks at the world in a completely different way."
(Reporting by Bernie Woodall and Jennifer Clark; Editing by Gerald E. McCormick, Maureen Bavdek, John Wallace and Nick Zieminski)