Chrysler’s 2Q net income up 16% on U.S. sales

But full-year forecast drops due to production delays

7/30/2013

DETROIT — Chrysler is having some growing pains.

The country’s third-largest automaker said Tuesday that its sales picked up in the second quarter thanks to strong U.S. demand for trucks and sport utility vehicles. But the company cut its target for full-year sales and profit, blaming persistent problems as it adds shifts and ramps up production of vehicles like the Ram pickup and the Toledo-built Jeep Cherokee small SUV.

“You need to remember that in 2010 we produced 1 million cars. We’re now at two-and-a-half times that level,” Chrysler Group LLC CEO Sergio Marchionne said in a conference call with analysts and media.

Among the hurdles Mr. Marchionne mentioned were getting enough parts from suppliers, working out the bugs in new components and adding more workers — like the second shift of 1,100 people who will start making Cherokees next month and the 1,250 people who will start making transmissions in Kokomo, Ind., early next year.

Chrysler isn’t the only automaker who has had problems ramping up production. Ford Motor Co. delayed the launch of the new Lincoln MKZ sedan this spring because of production and quality issues.

But Mr. Marchionne said Chrysler is unusual because it’s updating so many products and parts at once. He also says Chrysler had a lot of catching up to do when its majority owner, Italian carmaker Fiat SpA, brought it out of bankruptcy four years ago.

Chrysler’s first-quarter sales suffered because it was slow to release new versions of the Ram pickup and Jeep Grand Cherokee SUV, two of its most popular vehicles.

Those production issues were resolved by the second quarter. U.S. Ram sales rose 30.4 percent over last year, and Grand Cherokee sales soared 27 percent.

Chrysler sold 643,000 vehicles worldwide in the second quarter, up 10 percent from a year ago. Sales were also up 10 percent in the United States, where Chrysler sells 75 percent of its vehicles. Chrysler’s U.S. sales rose faster than the industry average of 8 per- cent in the second quarter.

U.S. sales were up for the company’s Dodge, Fiat, Jeep, and Ram brands; only the Chrysler brand, with aging vehicles like the Town and Country minivan, saw sales drop.

Still, because it lost first quarter sales and will be slow to launch the new Cherokee, Chrysler doesn’t expect to meet the targets it set at the beginning of this year. The Auburn Hills, Mich.-based company now expects to ship 2.6 million vehicles worldwide in 2013, at the low end of its goal of between 2.6 million and 2.7 million. It expects to earn between $1.7 billion and $2.2 billion, down from its previous target of about $2.2 billion.

Chrysler said its net income rose 16 percent to $507 million in the April-June period from $436 million a year ago. It was Chrysler’s eighth straight quarterly profit.

Fiat, which owns 58.5 percent of Chrysler, said Tuesday its second-quarter profit more than quadrupled to $188 million because of Chrysler’s performance. Without Chrysler, Fiat would have lost $327 million as its European sales dropped 5 percent.