Chrysler to Post a Profit for Q2

Chrysler Group LLC next month will report a second-quarter operating profit, Sergio Marchionne, chief executive of Chrysler and partner Fiat SpA, said Wednesday.

It marks the second consecutive uptick for Auburn Hills, Mich.-based Chrysler, which lost $197 million in the first quarter but showed signs of a turnaround with an operating profit of $143 million. The results show continued growth for a company that suffered a net loss of $3.785 billion in 2009, the year it used bankruptcy to shed debt, The Detroit News reported.

Analyst Erich Merkle, president of Autoconomy in Grand Rapids, said "Chrysler is doing remarkably well in sales."

Even though many of its vehicles are sold as part of fleet orders, with lower margins, they likely are profitable for the downsized automaker, he said.

"They are likely making money from fleet sales now, while it was impossible to do before bankruptcy," Merkle said.

Fleet sales also buy time until Chrysler gets its new and updated vehicles to market. Many are arriving in the fourth quarter.

Chrysler will report its second-quarter earnings Aug. 9, Marchionne said Wednesday in a call to release Fiat's earnings.

Fiat surprised analysts with its strong quarterly profits, largely on the strength of the agricultural and industrial divisions that will be spun off from the automotive group by Dec. 31. Net profit was $115.6 million, compared with a loss of $215 million in second-quarter 2009. Net revenues were up 12.5 percent, to $19 billion.

The company may raise its 2010 forecasts in the third quarter, Marchionne said.

He has also said he expects to raise Chrysler forecasts, if the new 2011 Jeep Grand Cherokee sells well.

Marchionne gave the Fiat update from Auburn Hills, where he hosted the Fiat board this week. Board members visited Chrysler's headquarters and toured the Jefferson North Jeep plant in Detroit, which has implemented Fiat's World Class Manufacturing system, focusing on eliminating waste and bottlenecks.

"The board was here and had an opportunity to visit the Jefferson North plant to see the first visible signs of World Class Manufacturing in the American context," Marchionne said.

Tuesday night, the board approved a plan, announced in April, to separate its industrial holdings into a new company. The split is intended to better realize the value of the different types of business within the Fiat Group.

Fiat will consist of automotive units including Fiat, Lancia, Alfa Romeo, Ferrari and Maserati and the powertrain and components divisions that support them.

The success of Fiat as an automotive-only entity relies heavily on its partnership with Chrysler.

"It also confirms Marchionne's commitment to Chrysler," Merkle said.

The new company, to be called Fiat Industrial SpA, includes the Iveco commercial and truck division and CNH, which makes agricultural and construction equipment and their engine units.

A special shareholders meeting will be held Sept. 16 to vote on the split. Shareholders will receive equal stakes in both companies, and net debt will be split evenly between the two.

"We are looking forward to new life on Jan. 1 as two companies," Marchionne said.

Deutsche Bank analyst Jochen Gehrke said Fiat's results were stronger than expected.

"The execution of management in a highly challenging environment is remarkable," Gehrke said in a report.

Nonetheless, Moody's Investors Service put Fiat's ratings under review for possible downgrade.

"Today's rating action was solely triggered by the approval of the de-merger plan," said analyst Falk Frey.

Marchionne also announced assembly of a multipurpose vehicle for Europe will start in Serbia rather than Italy because of an inability to negotiate terms with labor unions. He reveals his hard-line stance a year before negotiations with the United Auto Workers.