Chrysler CEO Says $3 Billion Profit Target Within Reach for 2012
Sergio Marchionne reports Chrysler has already sold over 1.23 million vehicles in the first half of 2012, putting the company on track for a $3 billion annual profit.
Chrysler is on course to surpass $3 billion in profit for 2012, according to CEO Sergio Marchionne. Speaking at a product launch in Italy, Marchionne confirmed the company had already sold more than 1.23 million vehicles in the first half of the year, exceeding the halfway point towards its annual sales target.
The target for 2012 is 2.8 million Chrysler Group vehicles delivered in the US. Marchionne described the $3 billion profit objective as “close at hand” and suggested the company could even overshoot it if current trends hold. This marks a sharp turnaround for Chrysler, which only three years earlier required government loans to survive the financial crisis.
Sales momentum and production capacity
Marchionne attributed the strong profit outlook to robust sales in the US market. With the company already past the halfway mark for its annual sales goal by July, the main concern has shifted to whether Chrysler can keep up with demand. Marchionne indicated that if extra capacity is needed, Fiat’s Italian plants could supply vehicles to the US, rather than shutting down facilities or cutting jobs in Italy.
This approach would help Chrysler meet US demand while also keeping Fiat’s workforce engaged, reflecting the operational links between the two companies since Fiat took control of Chrysler after its 2009 bankruptcy. Marchionne has previously discussed the possibility of merging Fiat and Chrysler’s corporate management once government loans are repaid and Chrysler is publicly listed again.
Loan repayments and financial pressures
Despite the strong profit outlook, Chrysler continues to carry the burden of high-interest loans from the US and Canadian governments. As of 2012, Chrysler owed $5.8 billion to the US and $1.3 billion to Canada, paying interest rates of 11 to 12 percent. Marchionne has called these rates a “thorn in my side”, noting that interest payments reached about $1.2 billion in the previous year alone.
Marchionne has stated that Chrysler would have posted a net profit earlier if not for the cost of servicing these loans. The company was seeking to refinance its debt with banks to reduce interest payments and improve its financial position. Marchionne also linked the timing of a Chrysler stock sale to the refinancing process, arguing it would be unwise to proceed with an IPO before lowering the company’s debt costs. For more on Chrysler's post-crisis financial recovery, see /chrysler-back-to-profit-announces-refinancing-transactions.
What it means for Chrysler and Fiat
A $3 billion profit would mark Chrysler’s strongest performance since emerging from bankruptcy, supporting Fiat’s strategy of integrating the two automakers. It would also improve Chrysler’s prospects for repaying government loans and returning to public ownership. For Fiat, the ability to use Italian production capacity to supply the US market offers a way to offset weak European demand without resorting to plant closures or layoffs.
