Source: USA TODAY
In what CEO Sergio Marchionne called a “not-so-glorious quarter,” Chrysler Group said it earned $166 million in the first three months this year, down 64.9% on revenue of $15.4 billion, a drop of 5.9%.
Chrysler said results were hurt by reduced vehicle shipments that resulted from launches of the 2013 Ram heavy-duty pickup and the 2014 Jeep Grand Cherokee, as well as preparations for the second-quarter launch of the all-new 2014 Jeep Cherokee. The model changeover work cut into shipments and sales.
The Jeep Liberty SUV was no longer being produced, and its replacement, the Cherokee, wasn’t on sale yet in the first quarter.
On a call with analysts and reporters, Marchionne acknowledged that new-vehicle launches are hardly unusual in the car business.
“We sold all the cars we could,” said Marchionne. “We just didn’t build enough to replenish.”
He knew the company was “going to be limping in the quarter … (we) just didn’t think it was going to limp that much.”
As product changeovers go, the Cherokee “is one of the trickier launches,” says IHS Automotive analyst Mike Wall.
“Should they have built more Libertys? Probably,” says Wall. “But history is littered with stories of companies who went too heavy on existing inventory and marginalized the launches.”
When companies have too many old models on the lot when replacement models arrive, Wall says they have to slash prices or add too many incentives on the old models and possibly do the same on the new ones.
Despite the inventory problems, Chrysler posted its seventh-consecutive quarter of profit.
“We remain on track to achieve our business targets, even as the first-quarter results were affected by an aggressive product launch schedule,” Marchionne said. “This quarter underscores the importance of an unwavering commitment to execute flawless vehicle introductions to reach our full potential.”
He said the “task ahead this year is daunting,” but the company is committed to targets that include a minimum shipment increase of 8% and a modified operating profit of $3.8 billion.
Chrysler set itself apart in 2012 by being the only domestic automaker to gain market share. The company also increased its average transaction price by nearly $1,000 per vehicle vs. 2011. That helped improve profitability.
KBB data show transaction prices on Chrysler models were up 2.7%, and Ram brand prices were up 6.7% in the first quarter, compared with the period in 2012. But Chrysler’s Dodge, Fiat and Jeep brands all saw declines in transaction prices.
Jack Nerad, KBB’s editorial director, says the popular new Ram pickup trucks are still performing well for Chrysler and he expects the new Jeep Grand Cherokee will do the same.
“Who would’ve guessed five years ago when Fiat rode to the rescue of a then-bankrupt Chrysler that Chrysler would be viewed as the savior of Fiat?” said Nerad, also KBB’s executive market analyst. “But that’s exactly how the tables have turned.”
Unlike parent company Fiat, Chrysler has almost no exposure in the still troubled European market. That continues to hamper Fiat, which saw first-quarter revenue of €19.8 billion ($25.9 billion), down 2% from the period in 2012.
Fiat earned €31 million ($40.6 million), down 88% from €262 million ($343 million) in the first quarter of 2012.