Ford Motor Company (F), General Motors Company (GM): Chrysler Profits Fall as Costs Rise

Chrysler’s Mike Manley introduced the Jeep Cherokee in Shanghai last week. Chrysler is bringing several Jeeps to China in a bid to boost profits. Photo credit: Chrysler Group

Chrysler Group LLC said on Monday that its first-quarter net income had fallen to $166 million, down 65% from a year earlier, on a decline in shipments and increased costs related to new product launches.

Chrysler, the Detroit automaker that forms the U.S. “house” of Italian automaker Fiat , said that first-quarter revenues were $15.4 billion, down 6%. The company’s adjusted pre-tax profit was $435 million, down from $740 million in the year-ago period.

All of this was broadly in line with expectations, though Fiat shares dropped on the news. Fiat itself is set to report its own earnings late on Monday.

An expected increase in costs that should set up a strong second half
The drop in Chrysler’s earnings was in line with expectations set by Fiat and Chrysler CEO Sergio Marchionne back in January, when he warned that shipment volumes in the first quarter would be hurt by several planned product introductions.

Chrysler launched revised versions of the heavy-duty Ram pickups and the Jeep Grand Cherokee during the quarter, and was ramping up to a second-quarter launch of the all-new Jeep Cherokee SUV. All of those projects involved production disruptions – production of the outgoing Jeep Liberty ceased during the quarter, in preparation for the Cherokee’s launch – and all increased Chrysler’s costs during the quarter.

Marchionne said in a statement on Monday that Chrysler remains on track to meet its previously announced full-year goals, something he described as a “daunting” task. Those goals include an 8% increase in shipments and an adjusted operating profit of $3.8 billion.

Surprisingly, Chrysler remains on track
All things considered, Chrysler has done surprisingly well since it emerged from bankruptcy into the waiting hands of Fiat in 2009, with this report making seven profitable quarters in a row. The company has posted monthly increases in U.S. sales for 36 straight months now. Its U.S. sales were up 21% last year, well ahead of the overall market, and up another 8% in the first quarter of 2013.

Chrysler’s sales and profits have long trailed those of its larger hometown rivals, General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) for one big reason: scale. While General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) both have significant overseas operations, Chrysler has for much of its history done most of its business in North America – and done so as kind of a value-priced alternative to its bigger rivals, with a larger reliance on sub-prime lending.