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Chrysler Predicts $300 Million Profit In 2011

Mon, 01/31/2011 - 3:32am
Tom Krisher, AP Auto Writer

DETROIT (AP) — An optimistic Chrysler narrowed its net loss significantly in the fourth quarter from a year ago and forecast a net profit for 2011 as it continued a comeback from bankruptcy protection.

Chrysler, which is controlled by Italy's Fiat Group SpA, predicted it would make $200 million to $500 million this year, setting the stage for an initial public stock offering that could take place in the fourth quarter.

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.

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 same period of 2009.

Karl Brauer, senior analyst for the Edmunds.com automotive website, said 16 new or revamped models, many of which hit showrooms toward the end of last year, have given the company momentum to back its prediction of turning a profit.

"They certainly have more and more going for them all the time," he said. "The momentum is behind them and it seems like they're going to get there eventually."

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.

There were some troubling signs in the fourth quarter, though. Chrysler had been cutting its losses during the first three quarters of the year, but the fourth-quarter loss was more than double the $84 million it lost in the third quarter. Revenue for the quarter also dropped, falling 2 percent from the third quarter to $10.8 billion.

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.

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.

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 make it through the first half. 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 new or revamped models of the Dodge Aspen SUV, Chrysler 300 luxury car, 200 midsize sedan and Fiat 500 minicar.

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," Marchionne said Monday in a statement.

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 U.S. It could rise to 35 percent if Chrysler meets other benchmarks, and 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.

Of late, Marchionne is sounding increasingly optimistic about Chrysler as its fortunes improve, with U.S. sales rising 17 percent last year.

"I think our presence in Chrysler could not have been forecast, and certainly in hindsight it was probably one of the best things that could have happened to Fiat," he said last week in Italy. "I think it is also one of the best things that could have happened to Chrysler, too."

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AP Business Writer Colleen Barry in Milan, Italy, contributed to this report.

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