Although Chrysler Group lost $3.8 billion since emerging from bankruptcy in June, its financial performance is exceeding the expectations of many analysts who see hopeful signs that the automaker may be on the road to recovery.
During the first quarter, the automaker trimmed its losses to $197 million and managed to scratch out an operating profit of $143 million, Chrysler said Wednesday.
"Profitability is significantly better than we appreciated," said Max Warburton, an analyst with Sanford C. Bernstein in England.
Although Warburton said that Chrysler still faces significant challenges and questions about its "long-term viability," he said the latest numbers suggest that the automaker's arguments that it will recover with the economy look more "credible."
Other analysts agree.
"It was questionable whether they'd survive 2010, but now the company seems to be on track for better days," said Michelle Krebs, an analyst with auto information company Edmunds.com.
Chrysler had first-quarter sales of $9.7 billion, 3% more than in its fourth quarter. Because of the bankruptcy restructuring, the financial results are not comparable to the same time periods a year earlier.
Cost cutting as well as better vehicle pricing, including a "more disciplined approach" to sales incentives, helped the automaker's financial performance, said Brian Johnson, an analyst with Barclays Capital.
It slashed debt to $3.8 billion from $8 billion and has built its cash holdings to $7.4 billion, up $1.5 billion from the fourth quarter.
Johnson noted that Chrysler's nearly $10 billion in first-quarter sales was well ahead of the $6.1 billion he had estimated. The operating profit also was a reversal of what Johnson had anticipated would be a $72-million loss.
The first quarter's financial results are "a concrete indication to our customers, dealers and suppliers that the 2010 targets we have set for ourselves are achievable. We are also generating cash to finance the investments being made in our product portfolio and brand repositioning," said Sergio Marchionne, chief executive of Chrysler.
He said he expects Chrysler to break even or have a small operating profit this year.
Marchionne became CEO of Chrysler after Fiat took over management of the Auburn Hills, Mich., carmaker when it emerged from bankruptcy in June.
Fiat took a 20% stake in Chrysler as payment for operating the company. Its stake can grow to 35% if it achieves certain goals, such as building new engines and vehicles in the U.S. Fiat once sold cars in the U.S. but withdrew from the market in 1983.
The federal government owns 10% of the automaker, Canada owns 2.5% and a trust fund run by the United Auto Workers union owns 68%.
Although Chrysler's financial performance is "ahead of expectations," its survival is not assured, Warburton said.
He said he continues to view the recovery as "theoretical until Chrysler can prove it can retake significant market share in the ruthlessly competitive U.S. market."
During the first quarter, Chrysler sales fell 5% to 234,215 vehicles from the same period in 2009, according to Autodata Corp. Chrysler lost ground at a time when overall auto sales grew by 15.5%.
Chrysler's share of the U.S. auto market fell 2 percentage points to 9.2% in the first quarter, putting it behind General Motors, Toyota, Ford and Honda and just ahead of Nissan, Autodata said.
Marchionne, however, said that customer traffic is starting to grow at Chrysler dealerships. That trend should continue as the automaker launches new products later this year, including a new generation Jeep Grand Cherokee, a new Chrysler 300 and what he called "the iconic Fiat 500."
The Fiat 500, or Cinquecento in Italian, is smaller than BMW's Mini Cooper. It's incredibly popular in fuel-sipping, narrow-street Europe but is a departure from the type of vehicle that appeals to traditional Chrysler customers — drivers of Hemi-engine-powered pickups in America's heartland. It will be built in Mexico.
Separately, the U.S. Treasury said Wednesday that General Motors Co. had repaid its entire debt under the Troubled Asset Relief Program. GM paid the remaining $4.7 billion of the total $6.7 billion in debt owed to the government. The repayment comes five years ahead of the loan maturity date.