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Ford, Chrysler see a mixed second quarter

Both companies report rising sales, but Ford Motor Co. says profits fell 8% compared with last year as the automaker paid off debt and invested in new vehicles. Chrysler Group had a net loss of $370 million as it repaid government bailout loans.

July 27, 2011|By Andrew Khouri, Los Angeles Times
  • Automakers reported rising sales Tuesday, but Chrysler, which makes the Jeeps shown at this Springfield, Ill., dealership, reported a net loss as the automaker repaid government loans.
Automakers reported rising sales Tuesday, but Chrysler, which makes the… (Associated Press )

Ford Motor Co. and Chrysler Group made financial headway in a sluggish economy in the second quarter, increasing sales and slashing debt.

Ford sales rose 13% to $35.5 billion, although profits fell 8% to $2.4 billion as the Dearborn, Mich., automaker spent more money on materials such as steel and on designing and building new vehicles.

Sales jumped 30% for Chrysler but losses widened to $370 million as the automaker repaid U.S. and Canadian government loans taken out during the financial crisis. Excluding that repayment, Chrysler earned $181 million.

"They are headed in the right direction" analyst Michelle Krebs analyst of said Tuesday, adding that the U.S. carmakers are rolling out new vehicles attractive to consumers. "Many of us have long said, 'You cannot establish a turnaround without good, new product.'"

Ford said it decreased its debt to $14 billion, shaving $2.6 billion from the previous quarter. The company borrowed heavily in 2006 to restructure operations.

"They are getting their financial houses in order to take advantage of higher vehicle sales," Krebs said. forecasts U.S. sales to rise by 1 million vehicles in 2012 to 13.9 million, with a slow climb to nearly 16 million in 2015.

Through the first six months of this year Ford sales rose 12.2% in the U.S. to almost 1.1 million vehicles, according to Autodata Corp. Ford's share of the U.S. auto market essentially remained flat, falling slightly to 16.9% compared with the same period last year, Autodata said.

Chrysler saw sales jump 21.4% to nearly 640,00 vehicles, according to Autodata. The Auburn Hills, Mich., automaker's share of the U.S. auto market rose to 10.1% from 9.4% in the same period in 2010.

"There is no doubt that Chrysler Group has taken a huge step forward this quarter," said Sergio Marchionne, chief executive of Chrysler and Italian automaker Fiat, which owns a controlling stake in Chrysler. Marchionne said he would announce a new unified management for Chrysler and Fiat within "a few days."

Ford's profit was also hurt by one-time charges, including $110 million in costs related to personnel reductions.

Ford's North American sales jumped 15% to $19.5 billion in the second quarter, and despite struggling European economies, the automaker's sales climbed 20% to $9 billion in Europe.

"Despite an uncertain business environment, we further strengthened our balance sheet and continued to invest for the future," Ford Chief Executive Alan Mulally said.

The company's investments in emerging markets trimmed earnings.

Ford is "using their cash flow to reduce debts and expand the business in regions where they haven't had much presence before," said Efraim Levy, an analyst at Standard & Poor's Equity Research. "It's not something that is going to pay off right away, but it's something that will benefit their profits in the medium and long run."

The industry as a whole faces challenges as it tries to rebuild from the depths of the recession, analysts say.

Higher prices for gas, steel and other commodities, as well as weak demand caused by the struggling U.S. and European economies, pose a challenge to automakers. It is also uncertain how the labor negotiations that begin this week between the Detroit Three — Ford, Chrysler and General Motors Co. — and the United Auto Workers union will pan out.

In part because of higher commodity prices, Ford said it expected results to be lower in the second half of 2011.

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