DETROIT — For the first time in nearly seven years, Detroit’s car companies are all making money again.
Chrysler, the last of the three to return to profitability, said Monday it made a $116 million net profit in the first quarter on revenues of $13.1 billion.
The company, which emerged from bankruptcy protection a little less than two years ago, hadn’t reported a net profit since 2006.
The announcement marked another chapter in the Detroit auto industry’s long comeback.
General Motors Co., which also went into bankruptcy in 2009 and took billions in government aid, has four profitable quarters under its belt and held an initial public offering in November to help repay its loans. Ford Motor Co., which didn’t take bailout money but nearly filed for bankruptcy five years ago, reported its eighth consecutive quarterly profit last week. Ford’s 2010 profit of $6.6 billion was the highest in a decade.
Several trends put the companies back in the black. Sales are rising as the economy improves, and each of the automakers has released popular new vehicles. All cut staff, plants and wages during the economic downturn. The Detroit Three are also taking customers away from rivals like Toyota Motor Corp., which was hurt by safety recalls last year and the recent Japanese earthquake. Chrysler’s sales rose 18 percent worldwide in the first three months of 2011.
“We are very pleased with the results,” Chrysler CEO Sergio Marchionne said in a conference call with media and analysts. “More than the numbers, I think they indicate that we are on the right path.”
Staying on that path is crucial for Chrysler, which hopes to hold a public offering later this year or early next. But investors want to see a string of profitable quarters before that happens.
New trucks and cars are helping the bottom line. U.S. sales of the revamped Jeep Grand Cherokee SUV jumped 64 percent in the latest quarter, while sales of the Chrysler 200 sedan more than quadrupled over those of its predecessor, the poorly rated Sebring.
Even better, buyers were willing to pay more for Chrysler’s vehicles. The average price paid per vehicle rose $1,000 to $28,300. Chrysler cut its spending on costly incentives and reduced the number of vehicles going into low-profit rental fleets.
GM, Ford and Chrysler all reported profits in the last quarter of 2004, but GM and Ford soon tumbled into the red. Chrysler last reported a net profit in the second quarter of 2006, one year before it was sold by Daimler AG to private-equity firm Cerberus Capital Management.
Cerberus didn’t invest the cash needed to weather the worst auto sales decline in more than 25 years. As a result, Chrysler came close to running out of money at the end of 2008. The U.S. government stepped in, authorizing $10 billion in aid and appointing Marchionne to run the company after it emerged from bankruptcy protection in June 2009.
The U.S. government remains a part owner of Chrysler, holding an 8.6 percent stake. But Chrysler wants to sever those ties.
In the second quarter, the company plans to repay $7.5 billion of the bailout from the U.S. and Canadian governments using a new, $3.5 billion bank loan, a $1.5 billion credit facility and a $2.5 billion debt offering. By repaying the debt, Chrysler will save millions in interest payments.
The U.S. government is also expected to recoup some of the bailout money when it sells its stock in the public offering.
But Chrysler isn’t out of the woods. The company still depends on sales of trucks and SUVs at a time when gas prices have hit $4 a gallon in 13 states plus the District of Columbia, a trend that will likely hurt sales of larger vehicles. The company doesn’t have a hybrid or a small car that gets 40 miles per gallon, as competitors Hyundai, Ford, General Motors and Toyota do.
Marchionne said the company has improved fuel economy by a combined 40 percent on its 2011 models. It also plans a significant shift to more efficient engines over the next three years, using technology from its partner, Italian automaker Fiat SpA.
Another setback has been the U.S. rollout of the Fiat brand, which the company hoped would lure more American to stylish small cars such as the Fiat 500.
Fiat sold just 500 of the subcompacts in the first quarter, putting it behind where it expected to be. Marchionne said it has taken longer than expected for dealers to get state licenses to sell the cars. Fewer than 50 of the planned 130 U.S. Fiat dealers are now open. The company had hoped to sell 45,000 Fiats here in 2011.
Marchionne acknowledged that the company has a long way to go before it’s completely healthy.
“Success is incredibly temporary. The first quarter is done, but we’ve got a lot of quarters to do,” he said.
That’s not keeping him from feeling bullish about Chrysler. Last month, Fiat, which is also run by Marchionne, gave Chrysler a vote of confidence when it said it will spend $1.3 billion to raise its stake in the American company. That will increase Fiat’s holdings from 30 percent to 46 percent. Fiat hopes to control 51 percent of Chrysler by the end of this year.
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