Chrysler posts net profit in Q1 2011; Fiat to obtain 51% ownership interest before the end of 2011

Adopts dual clutch transmission and 8-speed rear-wheel drive AT in 2011, 9-speed front-wheel drive A

2011/06/03

Summary

 Chrysler's performance is improving as the U.S. market recovers and with the contribution of the 16 new and significantly refreshed vehicles which Chrysler began building in 2010.

 Chrysler ended the year 2010 with net loss of $652 million but its worldwide vehicle sales increased from 1,318,000 to 1,516,000 units, above expectations.

 The company registered first quarterly net income ($116 million) for Q1 2011 in approximately five years while vehicle sales in the U.S. increased by 22% from 235,000 to 287,000 units. Chrysler's worldwide vehicle sales in 2011 are expected to increase from 1,516,000 units in 2010 to 2 million units.

 In May 2011, Chrysler completed full repayment of approximately $7.6 billion loans from the U.S. and Canadian governments. Consequently, Fiat was allowed to increase ownership interest in Chrysler from 20% at the start of the year to 46% and is expected to further increase to the 51% mark within the year.

 Chrysler is actively adopting fuel-efficient technologies as exemplified by the V6 Pentastar engine in 2010 and the 1400cc MultiAir engine in 2011 based on Fiat's technology. As for transmissions, Chrysler has adopted Fiat's dual clutch transmission and the 8-speed rear-wheel drive AT jointly developed by ZF. The company plans to adopt the 9-speed front-wheel drive AT as well in 2013.

 Starting in 2012, Chrysler will introduce a series of new models that share platforms with Fiat according to the mid-range business plan announced in November 2009, and is determined to sell 2.8 million units targeted for worldwide vehicle sales in 2014.



Vehicle sales are recovering especially in the U.S. in 2010 and Q1 2011

 Chrysler's business improved in 2010 as a result of the U.S. market recovery and the redesign and significant renewal of its existing models. Its vehicle sales in the U.S. increased from 931,000 units in 2009 to 1,085,000 units along with an increase of market share from 8.8 to 9.2%. Chrysler's share in Canada also increased from 11.0% to 13.0%.

 The vehicle sales in the U.S. during the first quarter of 2011 increased from 235,000 to 287,000 units, and the worldwide sales from 334,000 to 394,000 units, attributable to the brisk sales of the six new and the ten significantly refreshed vehicles, sixteen in total. Their production started in 2010, eleven of which in the fourth quarter of 2010.

 Chrysler expects the total demand in the U.S. in 2011 will top 14 million units (compared to 11,770,000 in 2010), and its worldwide sales to increase from 1,516,000 in 2010 to 2 million units. Chrysler plans to develop and introduce new products in accordance with the 2010-2014 mid-range business plan outlined in November 2009, and is determined to sell 2.8 million units targeted for worldwide sales for 2014.

Chrysler's worldwide vehicle sales and market shares

(vehicles in thousands )
  2008 2009 2010 Q1 2010 Q1 2011
Sales Market
share
Sales Market
share
Sales Market
share
Sales Market
share
Sales Market
share
U.S.
Canada
Mexico
1,453
223
116
10.8%
13.3%
10.9%
931
163
83
8.8%
11.0%
10.6%
1,085
205
79
9.2%
13.0%
9.3%
235
45
19
9.1%
13.7%
 
287
50
20
9.2%
14.7%
 
North America 1,792 11.0% 1,177 9.2% 1,369 9.6% 299   357  
Rest of World 215   141   147   35   37  
Worldwide 2,007 3.0% 1,318 2.1% 1,516 2.1% 334   394  
U.S. Industry 13,497   10,603   11,770   2,588   3,112  
Source: Chrysler SEC Filing Form 10 (2011.2.25), Q1 2011 Results Review (2011.5.2)
(Notes) 1. Results for 2008 and January-June 9, 2009 are those of the old Chrysler, results for periods starting on June 10, 2009 are those of the new Chrysler after the completion of the bankruptcy law procedure.
2. The dealer inventory increased from 208,000 units at the end of March 2010 and 236,000 units at the end of December 2010 (63 days of supply) to 302,000 units (67 days) as of the end of March 2011. Dealers are increasing their orders for Chrysler vehicles encouraged by the brisk sales of the 16 new models that suggest a continuing sales increase.
3. The minivan market in the U.S. is shrinking recently but Chrysler sold 216,000 units in the U.S. in 2010 with 45.3% market share, including 112,000 units of Chrysler Town & Country that proved to be the best-selling model.
4. Chrysler's vehicle sales in the U.S. in April 2011 increased 22.5% to 117,225 units (whereas the U.S. Industry grew by 17.9%). Its sales in January-April period totaled 404,175, representing a 22.5% increase (whereas the U.S. Industry grew by 19.6% during the same period).
5. Chrysler announced that production during the second and third quarters of 2011 would decline by 25,000 to 50,000 units each, 50,000 to 100,000 units in total, due to the Great East Japan Earthquake disaster.

 



Q1 2011 ended with first net income in nearly five years

 Chrysler announced its financial results for the year 2010 that showed a net revenue of $41.9 billion, operating profit of $760 million and net loss of $650 million which indicates more improvement than the company had anticipated.

 Chrysler's results for the first quarter (January-March) of 2011 showed net revenue of $13.1 billion, up 35%, achieving the first net profit of $116 million since the new Chrysler started in June 2009 (first net profit since the second quarter of 2006 including the days under the old Chrysler).

 The growth was driven primarily by the 16 new and significantly refreshed models of which production started in 2010 as well as the increased average prices and mix.

 Shipments increased from 380,000 units in the previous year to 485,000 units to meet increased dealer orders for the new and significantly refreshed vehicles.

Chrysler's financial results in 2010 and Q1 2011

($ millions)
  2010
Guidance
2010
Results
2011
Guidance
2010 2011
Q1 Q1
Worldwide Shipment (units)   1,602,000 2,000,000 380,000 485,000
Net Revenues 40,000-45,000 41,946 55,000 9,687 13,124
Modified EBITDA (Note 2) 2,500-2,700 3,461 4,800 787 1,171
Modified Operating Profit Breakeven-200 763 2,000 143 477
Net income/loss   (652) 200-500 (197) 116
Cash   7,347   7,367 9,877
Total Liquidity (Note 3)   over 9,600   9,800 12,100
Capital Expenditures (Note 4) 2,700 2,700      
Free Cash Flow   1,355 1,000 1,648 2,526
Source: Chrysler Financial Results (2011.1.31/2011.5.2)
(Notes) 1. The new Chrysler purchased major assets and certain liabilities from the old Chrysler (company name was changed to Old Carco LLC on June 10, 2009) and started operation anew on June 10, 2009.
2. Modified EBITDA and Modified Operating Profit represent Chrysler's business administrative indexes and, when compared to the GAAP (Generally Accepted Accounting Principles) of the United States, the Modified Operating Profit is computed starting with net income (loss) and then adding back taxes, interest payable and restructuring expenses. Likewise, the Modified EBITDA is computed starting with Modified Operating Profit as described above and then further adding back depreciation and amortization expense.
3. Chrysler had credit facility in the amount of $2,300 million provided by the U.S., Canadian and Ontario governments along with total liquidity of $12,100 million as of the end of March 2011 (showing further increases from $8,300 million at the end of December 2009 and over $9,600 million at the end of December 2010).
4. Chrysler is continuing joint efforts with Fiat to develop products due to be launched in 2012 and after that share platforms. Chrysler anticipates capital expenditures will continue at a constant level.

 



Chrysler: Fiat to acquire 51% ownership interest in 2011; Chrysler completes full repayment of government loans

 On May 24, 2011, Chrysler completed full repayment of the approximately $7.6 billion loans provided by the U.S. and Canadian governments, using loans provided by private financial institutions and additional investments by Fiat. The high interest rates of the government loans were suppressing Chrysler's income and the company reportedly chose to switch to loans provided by a group of banks.

 The new Chrysler started on June 10, 2009, with Fiat investing for a 20% ownership interest. Their agreement permits Fiat to acquire a controlling share in Chrysler on conditions, including that Chrysler will produce fuel-efficient engines by Fiat's technology. Fiat has exercised its option to acquire 16% of Chrysler ownership interest concurrently with Chrysler's repayment of government loans on May 24, thereby increasing its equity investment ratio to 46%, to be followed by an additional 5% equity investment by the end of 2011 to acquire 51% control.

 Upon acquiring 51% ownership interest in Chrysler, it has been reported that Fiat may acquire shares currently owned by the U.S. government and UAW VEBA and increase its control over Chrysler further to 70% or higher.

Fiat to increase ownership interest in Chrysler to 46% in May and to 51% by the end of 2011

  Change in ownership interest Conditions met by Chrysler-Fiat
January 10, 2011 20%→25%  Production of Fiat's fuel efficient FIRE engines began at Chrysler's Dundee plant in the U.S.
April 12, 2011 25%→30%  Chrysler is to achieve over $1.5 billion sales in markets other than North America cumulative after June 10, 2009 when the new Chrysler started (including conditions that Chrysler vehicles or Chrysler-based vehicles are sold in more than 90% of Fiat dealers in Brazil and EU).
May 24, 2011 30%→46%  Fiat to exercise option to acquire 16% ownership interest in Chrysler (on condition that outstanding loans provided by the U.S. and Canadian governments have fallen below the $4 billion mark).
Q4 2011 46%→51%  Chrysler to start U.S. production of fuel efficient vehicles with 40 mpg or higher combined fuel efficiency using Fiat's technology (production of Fiat's platform-based C-class sedan to start in the fourth quarter of 2011). (See Note 2)
Possibilities Buy shares from
U.S. government
 Fiat has the option to acquire shares currently owned by the U.S. government (8.6% as of April 12) within twelve months upon full repayment of government loans by Chrysler. (See Note 3)
Buy shares
from VEBA
 Fiat also has the option to acquire 40% of shares owned by UAW VEBA (59.2% as of April 12, 2011) from June 2012 to the end of 2016.
Source: Chrysler press releases 2011.1.10/2011.4.12/2011.4.21, Fiat press release 2011.4.21
(Notes) 1. The new Chrysler started with Fiat having 20% ownership interest. Other shareholders were 55% by UAW VEBA (Voluntary Employee Beneficiary Association), 8% by the U.S. government and 2% by the Canadian government, 85% in total. This arrangement was agreed assuming that Fiat's ownership interest would increase up to 35%.
2. When Fiat acquires 51% ownership interest, Chrysler's shareholders will consist of Fiat (51%), UAW VEBA (41.5%), the U.S. government (6.0%) and Canadian government (1.5%).
3. Fiat's purchase of Chrysler shares from the U.S. government will let Fiat-Chrysler get out from under the government while Fiat will be able to receive more profit from Chrysler whose profitability is expected to improve. This will be a step closer to let the government get out of being involved with private enterprises.

 

Chrysler: Full repayment of $7.6 billion loans from the U.S. and Canadian governments

 On May 24, 2011, Chrysler used $7.5 billion bank loans and $1.3 billion additional investments by Fiat to complete full repayment of approximately $7.6 billion loans provided by the U.S. and Canadian governments. The provision of new loans, repayment of the government loans and additional investment by Fiat were exercised concurrently. In total, Chrysler paid $8.5 billion including interest and other considerations.
 The loans provided by U.S. and Canadian governments bore high interest rates and Chrysler's net interest payment (interests payable less receivable) in 2010 was $1,228 million payable mainly to the two governments (for instance, the U.S. government loan of $3,557 million due June 2017 carried an interest rate of 12.16%). Chrysler announced that the refinancing will save the company $ 350 million in interest payment per annum.

Source: Chrysler SEC Filing 2011.2.25, press releases 2011.4.28/2011.5.19, Reuter 2011.5.5

 



Revamping existing models in 2010, massive launch of Fiat-based vehicles starting in 2012

 In 2010, Chrysler remodeled or significantly refreshed almost all of its North American models with the exception of the recently renewed Ram pickup series, Dodge Caliber soon to be removed from lineup, and a few other models. Among the significantly refreshed models, most of the C/D segment vehicles are to be replaced with the Fiat-based counterparts in 2012-2013, but Chrysler resorted to a broad model renovation to regain momentum in its sales.

Chrysler's MY2011 lineup

* New models whose production started in 2010 (developed on a new platform)
** Significantly refreshed models whose production started in 2010
(built on an existing platform but significantly changed or improved)
(Fiat 500/500 Cabrio and Chrysler 200 convertible were released in 2011 as MY2012)
Brand Chrysler Jeep Dodge Ram Fiat
Cars
Mini
Small
Mid-size
Full-size
Sport
 
 
 
**200(Note 2),
*300,
**200 convertible
   
 
Caliber,
**Avenger,
*Charger,
**Challenger,
   
*500,
*500 Cabrio
 
 
 
Other
Minivans
 
**Town & Country
   
**Grand Caravan
   
Utility
Vehicles
  **Patriot,
**Compass,
**Wrangler,
**Wrangler Unlimited,
**Liberty,
*Grand Cherokee

**Journey,
Nitro,

*Durango

   
Pick-up
Trucks
      Dakota,
1500,
2500/3500,
*Chassis Cab
 
Source: Chrysler SEC Filing Form10 (2011.2.25)
(Notes) 1. Among the models without the * or ** mark, Ram 1500/2500/3500 were released as new models in 2008-2009 and Dodge Caliber/Nitro and Ram Dakota are being removed from sales in 2011-2012.
2. Chrysler 200 is the new name for the old Chrysler Sebring.

2011: Launching MY2012 models in North America, working with Fiat in Europe and South America

 Among the 16 new or significantly refreshed models, the eleven models whose production started in the fourth quarter of 2010 and released for sale at the end of 2010 or early 2011 are likely to contribute to Chrysler's vehicle sales in 2011. The company will also release MY2012 models of Fiat 500/500 Cabrio, Chrysler 200 convertible and the SRT8 series powered by the 8-cylinder high-performance engines. Chrysler also plans to start using Dual Dry Clutch Transmission and 8-speed AT in 2011.

 Starting in mid-2011, Chrysler will promote sales in Europe and Brazil using Fiat's sales network.

 Chrysler will sell and/or produce Alfa Romeo branded vehicles in North America for market launch in Mexico in 2011 and in the United States and Canada in 2012 (comeback after the withdrawal from the U.S. markets in 1995 due to quality issue).

Chrysler's MY2012 model launches

New or significantly refreshed models
Fiat 500  Production of Fiat 500 started in December 2010 at Toluca plant in Mexico. Powered by Fiat's 1400cc MultiAir engine and 6-speed AT.
 Released for sale in March 2011 at 130 dealerships in the U.S. (to be increased to 165) and 64 in Canada. Fiat 500 is expected to draw in customers leading different lifestyles than existing Chrysler customers.
Fiat 500 Cabrio  Announced in April 2011 with starting price of $19,500.
Chrysler 200
Convertible
 Seats four with modified exterior design and accent along with renovated interior and suspension. Powered by V6 Pentastar engine and 6-speed AT.
SRT8 Series
SRT8 Family  Jeep Grand Cherokee, Dodge Charger and Chrysler 300 are sold with available SRT8 models powered by 8-cylinder 6400cc HEMI high-performance engine (465-470hp) and most likely with the 5-speed AT.
Models with fuel-efficient powertrains
Chrysler 200  Fiat's Dual Dry Clutch Transmission will be used on Chrysler vehicles for the first time for market launch in the second quarter of 2011.
Dodge Avenger
Jeep Wrangler  Wrangler/Wrangler Unlimited are powered by V6 Pentastar engine and 5-speed AT in place of the conventional 4-speed AT.
Dodge Charger  ZF's rear-wheel drive and AWD 8-speed AT will be available in combination with the V6 Pentastar engine for market launch in mid-2011.
Chrysler 300

Source: Chrysler 2010 & Q1 2011 Financial Results

Chrysler-based vehicles sold under Fiat brands

Brand name Model name Description
Fiat Freemont  Dodge Journey-based Crossover developed for Europe and South America. Powered by the newly-developed V6 3600cc engine and available front-wheel drive or AWD system.
Lancia
or
Chrysler
Thema  Chrysler 300-based flagship car with available rear-wheel drive or AWD system.
Grand Voyager  Based on the significantly refreshed Chrysler Town & Country with enhanced advanced safety features.
Flavia  Based on the significantly refreshed Chrysler 200, exhibited at 2011 Geneva motor show, sold in sedan and convertible styles.
Source: Chrysler SEC Filing (2011.2.25), Q1 2011 Financial Results (2011.5.2)
(Notes) 1. In June 2011, Fiat will be Chrysler's sole distributor for Europe and promote sales with plans to (1) leverage Chrysler's existing sales channel, (2) build a new sales channel, and (3) sell Chrysler vehicles under the Fiat brand as shown above, to best suit the local conditions.
2. The Chrysler and Lancia brands will be integrated and either one will be used to suit the local situations. As far as European markets are concerned, Lancia brand vehicles will be sold in continental markets and Chrysler brand vehicles in the United Kingdom and Ireland.
3. In Brazil, Chrysler vehicles will be sold through Fiat's dealer network under the Fiat brand. In June 2011, the Dodge Journey will be sold as the Fiat Freemont powered by 2400cc engine.

 

Launching new models in 2012 built on Fiat's platforms

 Starting in 2012, Chrysler will launch a series of new models built on Fiat's platforms. According to Chrysler, developing a new platform would cost as much as $200 million and several years before completion and sharing platforms with Fiat is not only a technical and financial benefit but it also leads to faster market launch of new products.

 Chrysler and Fiat are developing a new platform dubbed "Compact U.S. Wide" or "CUSW" based on Fiat's C-Evo platform for use starting in early 2012. Chrysler's C/D segment vehicles, other than Jeep Wrangler having a body-on-frame structure, will be built on this new platform.

 Chrysler plans to refresh all product lineups, existing since 2009, by 2014 and more than one half of Chrysler vehicles will be sharing platforms with Fiat's by then.

 See "Chrysler's medium-term plan to double global sales to 2.8 million by 2014" (MarkLines report of December 7, 2009) about Chrysler's 2010-2014 medium-term plan as the company is basically following the plan.

 



Chrysler: Adopting fuel-efficient powertrains

 Chrysler will adopt Fiat's engine and transmission technologies and increase its average fuel economy by 25% or higher between 2010 and 2014. In the Fiat-Chrysler alliance, Fiat will be responsible for the development of small gasoline engines and diesel engines while Chrysler will be responsible for developing large displacement gasoline engines and electric vehicles. Chrysler plans to adopt Fiat's MultiAir and direct fuel injection technologies in its 4-cylinder and V6 engines as well.

 With regard to transmissions, 2012 Chrysler 200 and Dodge Avenger being released in the second quarter of 2011 will feature DDCT (Dual Dry Clutch Transmission) based on Fiat's technology. Chrysler, in partnership with ZF Friedrichshafen, will use the 8-speed rear-wheel drive AT in the Chrysler 300 and Dodge Charger in mid-2011 and 9-speed front-wheel drive AT in 2013. Both the 8-speed and 9-speed ATs will be produced at Chrysler's Kokomo, Indiana, U.S., plant starting in 2013; but, Chrysler will buy the transmissions from ZF until local production starts or in case of short production.

Chrysler: Starting production and use of new powertrains

1400cc MultiAir
engine
 Chrysler started making Fiat's 1400cc FIRE engines at Dundee South plant in Michigan, U.S., in November 2010, and used them in Fiat 500 whose production began in Toluca plant in Mexico in December of the same year. The engines feature Fiat's MultiAir system resulting in a 10% improvement in power, 15% in torque and 10% in fuel efficiency. (See Note 1)
2000cc-class
engine
 The Dundee North plant currently produces Chrysler's four-cylinder naturally aspirated 2000cc/2400cc engines dubbed "World Gas Engines." Chrysler plans to start making 2400cc engines with MultiAir technology in 2012 for use on its C/D segment vehicles being developed upon the CUSW platform.
V6 Pentastar
engine
 Chrysler started making the newly-developed Pentastar V6 3600cc engines at Trenton plant, Michigan, U.S., in March 2010 and at Saltillo plant in Mexico (see Note 2) in October of the same year. The new engine, representing a 7% improvement in fuel efficiency compared to the conventional ones, is used on the new Jeep Grand Cherokee released in the second quarter of 2010. The Pentastar V6 engine is designed to incorporate Fiat's MultiAir system, direct fuel injection and turbocharger technologies.
(Notes) 1. FIRE (Fully Integrated Robotized Engine), deriving from the historical fact that robots were used in the engine production line in the 70s, has been used as the name of the engine ever since.
2. In October 2010, Chrysler started making the newly-developed V6 Pentastar engines at Saltillo Engine Plant, the company's sixth plant in Mexico. The plant, built at $570 million, has an annual capacity of over 400,000 units.
Adopting transmissions developed by new technologies
Dual Dry Clutch
Transmission
 Chrysler's first use of Fiat's 6-speed Dual Dry Clutch Transmission will be on MY 2012 Chrysler 200 and Dodge Avenger being released in the second quarter of 2011. The DDCT gives a 10% increase in fuel efficiency along with higher driving performances. The DDCT will also be used on the C segment vehicles to be launched in the future.
8-speed AT
(for rear-wheel
drive vehicles)
 In partnership with ZF, the 8-speed rear-wheel drive AT (including the available AWD type) will be used on MY 2012 Dodge Charger and Chrysler 300 being released for sale in mid-2011. The transmission gives a 12% improvement in fuel efficiency compared to the conventional 5-speed AT. Chrysler plans to use the AT on all rear-wheel drive models in the future with the exception of Ram heavy-duty trucks (the same transmission is also used by BMW and Audi).
9-speed AT
(for front-wheel
drive vehicles)
 Chrysler will also form a partnership with ZF and will be the first automaker in the world to use ZF's 9-speed AT, yet to be produced, on its C/D segment front-wheel drive models slated for market release in 2013. The transmission gives an 11% improvement in fuel efficiency compared to the conventional 6-speed AT. (See Note)
Start/Stop  The Jeep Wrangler diesel-fueled vehicle being launched in Europe in 2011 will be Chrysler's first model that uses Fiat's Start/Stop system. Chrysler plans to use the system on 90% of its models sold in North America by 2017.
Adopting lightweight axles
Lightweight
Axle by ZF
 In partnership with ZF Friedrichshafen, Chrysler has acquired ZF-patented lightweight axle technology to produce the axles at its own plants and used them on the Jeep Grand Cherokee and Dodge Durango in 2010. The axles will be used also on Ram pickup trucks in 2011 giving up to a 34% weight reduction from conventional axles.
Source: Chrysler press releases 2010.1.7/2010.3.19/2010.6.9/2010.10.29
(Note) Chrysler has invested a total of $1,186 million in its Indiana transmission plant and Kokomo casting plant to prepare the facilities to start producing 8-speed rear-wheel drive AT and 9-speed front-wheel drive AT in 2013 using ZF's technologies. Chrysler will buy the transmissions from ZF until its own plants are ready or in case of short production. (In 2013, ZF will start volume production of the 8-speed and 9-speed ATs at a new plant being constructed in Greenville, South Carolina, U.S. This will mark the world first production of 9-speed AT.)

Chrysler: Electric vehicle plans

Fiat 500 EV  Starting in 2012, Chrysler will produce Fiat 500 EV in North America and introduce them in the local market. According to Chrysler, the compact and lightweight platform of Fiat 500 can be converted to electric vehicles relatively easily. Fiat will sell the Fiat 500 EV in markets other than North America. Chrysler will be responsible for developing electric vehicles for Fiat-Chrysler group.
Plug-in Hybrid
testing vehicles
 Chrysler has received a grant of $48 million from the U.S. Department of Energy (DOE) and produced 140 units of Dodge Ram-based Plug-in Hybrid testing vehicles that are being tested since 2010. Chrysler has also produced front-wheel drive minivan-based Plug-in Hybrid vehicles that are currently put to driving tests.

Source: Chrysler SEC Filing (2011.2.25)、Q1 2011 Financial Results (2011.5.2)

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