Launch Costs Eat Into Chrysler’s First Quarter Profit

AUBURN HILLS (WWJ) – Chrysler posted a $166 million first quarter profit, down from $473 million a year ago. Despite the decrease in earnings, it’s still the company’s seventh consecutive quarterly profit, after years of losses.

The company blamed the cost of launching important new products from Jeep and Ram, and said the investment in those new products will mean stronger profits going forward.

Chrysler CEO Sergio Marchionne said they were bracing themselves for a quarter that was going to be less than spectacular.

“It isn’t until you see the numbers as we presented them today, that you realize they really were not spectacular,” he said. “They were expected because we knew the production launches would cause a substantial drop in shipments for the quarter. We were hoping, to be honest that we’d be able to do somewhat better than this.”

While Chrysler sales were up 7 percent in the quarter, that reflects sales from dealers to customers. The company’s actual deliveries to dealerships were down in the quarter, leading to a six percent reduction in revenue to 16.4 billion dollars.

For now, analysts are seeing this as mostly a “bump in the road.”

“This is not necessarily something to worry about at this point,” said Jeff Schuster with LMC Automotive.

Schuster says you need to spend money to make money.

“You have to launch new vehicles,” he said. “You have to bring out new product, and that costs money.”

Chrysler shipped 574 thousand vehicles in the first quarter, down from 607 thousand a year ago. The company says most of that reduction came from the elimination of the Jeep Liberty. The Liberty’s replacement, the Jeep Cherokee, will start shipping next month.

Schuster says there is a lot riding on the Cherokee.

“The Cherokee launch is critical, I think to the group, and it’s further transformation.”

Stronger earnings from the new products, Chrysler says, will begin to be felt in the second half of the year. Which is why Chrysler is sticking with its guidance of a $3.8 billion profit for the full year.

“We remain focused on achieving the 3.8 billion number that we set for ourselves as a profit objective, and making the number,” said CEO Sergio Marchionne. “There’s not a guy in this house that feels it’s going to be a walk in the park.”

Marchionne says he sent an email to workers telling them to put the rough quarter behind them.

“Just close your eyes, hold your nose and move on from here.”

Connect with Jeff Gilbert
Twitter: @jefferygilbert

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