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Chrysler pares losses, sees profit ahead

August 10, 2010

Embattled US automaker Chrysler pared its losses in the second quarter and said Monday it was firmly on the road to profitability and a successful public stock offering.

A year after emerging from a government-financed restructuring under bankruptcy, Chrysler was able to narrow its net quarterly loss to 172 million dollars, a 25 million dollar improvement over the first quarter of 2010.

More importantly, said Chief Executive Officer Sergio Marchionne, both revenues and operating profits are on the rise and a major onslaught of fresh product is set to hit showrooms in the coming months.

The results posted for the first half of the year make it "mathematically impossible for us not to exceed the targets we set out for 2010," Marchionne said in a conference call with analysts.

"Unless all of us fall asleep at the switch here it is impossible for us not to upgrade guidance at the end of September."

Marchionne noted that Chrysler would have made a profit in the quarter had the US government chosen to convert its loans into an equity stake like it did for rival General Motors.

Operating profit -- which excludes taxes, interest and other charges -- was up 40 million dollars to 183 million dollars between April and June. Revenues grew 791 million dollars from the first quarter to 10.5 billion.

Chrysler formed a strategic alliance with Fiat upon emerging from bankruptcy on June 10, leaving the Italian Marchionne to head the firm.

The success of the new Jeep Grand Cherokee, the first product launched since Marchionne took over, bodes well for the roll-out of 12 new or revamped models in the second half of the year.

"The ability to execute on that project to me was the most significant proof of the fact that the house knows how to make cars and knows how to do it well," Marchionne said.

"I may fail on the marketing side, but the industrial side will not fail."

Marchionne forecast "a significant increase in performance in 2011" and said Chrysler would be ready for a successful IPO sometime next year.

He acknowledged that the new company's "track record may be in its infancy" but said Chrysler "has got a longer history than the bankruptcy" and said its efforts are "clearly visible in the product."

"It's impossible to fake your way through a new Grand Cherokee," he said.

"It's something tangible, it's relative large and it's relatively complex."

The fact that Chrysler is already generating cash and an operating profit when it has only one substantially new product in its showrooms is a "good indication" that it will be able to "stand on its own" and be solidly profitable once its full product line is revamped, he added.

Worldwide sales rose around 22 percent in the second quarter, to 407,000 units, as US market share climbed slightly to 9.4 percent, from 9.1 percent.

Marchionne said it was likely Chrysler would hit a monthly US market share of 10 percent in the next five months, but said he will not chase market share at the expense of profits.

"We've all lived through significant periods here when market share was higher than this today and we were bleeding," he said in the conference call.

"If you ask me to trade a bleed for market share, the bleed is gone."

A more important number, he said, is hitting annual sales of 1.6 to 1.65 million vehicles in order to achieve Chrysler's operating profit target.

Chrysler sold 527,000 vehicles in the United States and 741,000 worldwide in the first half of the year.

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