March 31, 2023

European Troubles Lower Results for VW and Fiat

Until now, Volkswagen, the German auto company, had been buffered a bit more than other auto companies doing business in Europe because of its size and strong sales in North America and China.

But its shrinking profit margins reflect both the industry’s steep sales decline in Europe as well as intense price competition in the biggest vehicle segments.

Volkswagen joins a growing roster of foreign and United States automakers that are struggling in Europe, where car sales dropped 10 percent during the first quarter, including double-digit decreases in France, Germany and Spain.

Most automakers are banking on surging sales in the United States to offset some of these losses.

And VW’s chairman, Martin Winterkorn, cautioned that the company expected little improvement any time soon in Europe.

“The coming months will be anything but easy,” Mr. Winterkorn said in a statement. “The current environment is definitely a tough challenge for the entire industry.”

VW reported on Monday that its after-tax profit fell 38 percent, to 1.95 billion euros ($2.5 billion) in the first quarter, even though revenue slipped just 1 percent, to 46.6 billion euros.

The Italian automaker Fiat also reported a drop, reporting that its net profits plunged 88 percent during the three-month period, to 31 million euros ($40 million), and that revenue fell 2 percent, to 19.76 billion euros.

Fiat’s chief executive, Sergio Marchionne, said that the combination of pricing pressure and weak demand was likely to depress profits in Europe for some time. “It is unfortunate the European market is in this state,” Mr. Marchionne said Monday in a conference call with reporters and analysts.

He added that some automakers had considered themselves immune to the downturn, but no longer. “Those who have claimed a Teflon approach are getting that coat taken off,” he said.

Last week, the American automaker Ford reported a pretax loss of $462 million in Europe, and projected a full-year loss of $2 billion in the region. And the French carmaker PSA Peugeot Citroën said it expected losses to force new labor talks to cut costs and increase competitiveness.

With the European market in such a dismal state, most auto companies are counting on surging sales in the United States to generate the bulk of their future profits.

At Volkswagen, the company’s Audi luxury brand is the bright spot in its lineup. Audi, which has posted a 16 percent sales increase in the United States this year, contributed more than two-thirds of overall profits that VW earned in the first quarter.

Fiat has been getting virtually all of its profits from its Chrysler subsidiary in the United States.

Fiat took control of Chrysler after the American company’s government bailout and bankruptcy in 2009. Since then, the Italian automaker has accumulated a 58.5 percent stake in Chrysler, and they have begun developing vehicles together.

In the first quarter, however, Chrysler’s comeback stalled somewhat, as it spent heavily on new versions of two core products, the Jeep Grand Cherokee sport utility vehicle and a heavy-duty Ram pickup truck.

Chrysler said Monday that its net income fell 65 percent during the quarter, to $166 million, and revenue dropped 6 percent, to $15.4 billion.

Yet Chrysler still managed to help Fiat post a profit. Without Chrysler’s contribution to the bottom line, Fiat said it would have lost money during the period.

Mr. Marchionne, who is also chief executive of Chrysler, said he expected the American company to reach its full-year target of $2.2 billion in net income and revenue of $72 billion or more.

He said that the coming introduction of the new Jeep Cherokee S.U.V. this summer was “crucial” to hitting those goals.

“We need to do everything we can between now and then to make it happen,” Mr. Marchionne said.

He added that given the strength of the United States market, Chrysler should regain momentum with its new models. “The onus is on us,” he said.

Analysts said that Chrysler’s performance remained Fiat’s best hedge against the turmoil in Europe.

“Who would’ve guessed five years ago when Fiat rode to the rescue of a then-bankrupt Chrysler, that Chrysler would be viewed as the savior of Fiat?” asked Jack R. Nerad, an analyst with the auto research service Kelley Blue Book.

Mr. Marchionne also updated analysts Monday on the potential for Fiat to take full ownership of Chrysler.

“I have always seen Fiat and Chrysler being one entity at some point in time,” he said. “How we get there is a story that’s going to be written.”

Fiat hopes to buy the 41.5 percent stake in Chrysler owned by a health care trust for United Automobile Workers union retirees in the United States. But Fiat and the U.A.W. trust remain far apart on a price for the shares.

A federal judge in Delaware is considering different valuations proposed for the stock, and is expected to make a ruling on a fair price this summer.

Until the court case is resolved, Mr. Marchionne said a potential Fiat-Chrysler merger was temporarily delayed.

“I remain hopeful that we can find a solution that meets their objectives and ours,” he said.

If Fiat is successful in acquiring the shares owned by the U.A.W. trust, it could consolidate its balance sheet with Chrysler. Fiat could then gain access to Chrysler’s cash reserves to bolster its product lineup in Europe and elsewhere.

Once a Fiat-Chrysler merger is completed, Mr. Marchionne said the combined company would restructure itself and issue new shares to raise capital.

Fiat shares, like most Italian companies, are currently traded on the stock exchange in Milan. But Mr. Marchionne said new shares in Fiat-Chrysler would most likely be listed on the New York Stock Exchange.

“It’s the most efficient capital market I can get my hands on,” he said.

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Chrysler Quarterly Profit Jumps

DETROIT (AP) — Strong U.S. sales powered Chrysler to a healthy third-quarter profit.

The company on Monday reported net income of $381 million, up 80 percent from $212 million a year earlier. The profit was due mainly to a 13-percent sales increase in the U.S., where Chrysler does three quarters of its business. The company sold nearly 417,000 cars and trucks in the U.S. under the Jeep, Dodge, Ram, Fiat and Chrysler brands.

Under the ownership of Italy’s Fiat SpA, the Detroit company has been transformed since its 2009 trip through bankruptcy protection. It has posted profits since early last year and is now propping up Fiat, which is struggling with dropping sales in Europe.

Unlike its Detroit rivals General Motors Co. and Ford Motor Co., Chrysler has few sales in Europe and its profits aren’t being eroded by losses there.

Chrysler’s sales have been helped by a series of revamped cars and trucks that began rolling out in 2010, including the Jeep Grand Cherokee SUV, the Ram pickup and the Chrysler 200 midsize sedan.

The company’s quarterly revenue rose 18 percent to $15.5 billion as global sales increased 12 percent.

The company earned $1.29 billion in the first nine months of the year, and it reaffirmed a 2012 profit forecast of $1.5 billion.

Chrysler Group LLC also repeated estimates that it would ship 2.3 million to 2.4 million vehicles worldwide this year, as well as generate $65 billion in revenue.

CEO Sergio Marchionne, in an e-mail to employees, said the competition isn’t showing any signs of vulnerability, so the company will have to keep fighting for its share of the market.

“We are going in the right direction, and I simply ask you to keep faith in Chrysler and in each other and keep working to shape this company,” he wrote.

Chrysler plans 66 new, revamped or special-edition cars and trucks by 2014, Marchionne wrote.

Even though it had a good quarter, Chrysler’s rapid growth is starting to slow. Its U.S. sales last quarter fell about 4 percent from the second quarter and it faces increased competition from Honda and Toyota. The two Japanese companies have recovered from last year’s earthquake and tsunami that hobbled their factories and left them short of models at U.S. showrooms.

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U.A.W. Shelves Chrysler Talks and Turns to Ford

After the U.A.W. announced a tentative contract with General Motors last week, it was widely expected to focus on Chrysler next with the goal of striking a more lucrative deal with Ford by leaving that company last. Instead, the union announced a four-week extension of the old contract with Chrysler — hours before an earlier extension was set to expire — and then said it was turning its attention to Ford.

“I have just concluded a meeting with President Bob King, and I am proud to announce that we have been chosen as the next department to begin the final stages of negotiations, and not Chrysler as previously speculated,” Jimmy Settles, the U.A.W. vice president in charge of negotiations with Ford, wrote in a message to workers that the union posted on Facebook. Mr. Settles wrote that he is eager “to begin intense discussions with the company and work towards a tentative agreement.”

The delay in reaching a deal with Chrysler follows a critical letter that Chrysler’s chief executive, Sergio Marchionne, sent last week to Mr. King. Mr. Marchionne chided Mr. King for failing to show up to finalize a settlement — Mr. King had chosen to remain in talks with G.M. rather than divide his time between the two companies — and said the two had “failed” workers by not finishing talks before the previous contract was set to expire.

Mr. Marchionne then traveled out of the United States on business but returned to Michigan earlier this week and had been expected to meet with Mr. King. He told reporters in Italy on Monday that he expected a quick resolution to the negotiations and was eager to “get this issue behind us.”

The latest extension with Chrysler expires Oct. 19.

“When one model stalls, you jump in another one that you think will be moving,” said Harley Shaiken, a professor of labor relations at the University of California at Berkeley. “It doesn’t mean that Chrysler is deadlocked; it simply means that there were some unexpected obstacles and the union thought Ford would be more productive.”

Meanwhile, G.M. workers are beginning to vote on their tentative agreement, which includes bonuses totaling $9,000 over four years, larger profit-sharing checks, raises for entry-level workers and new jobs for work that otherwise would have been performed in Mexico.

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New Breed of Leaders Helped Guide Fuel Standards, Chrysler Says

In past battles over gas-mileage requirements, the Detroit car companies argued that big increases in fuel-efficiency would be too expensive and cost jobs.

But last week’s accord between the Obama administration and carmakers to reach an average of 54.5 miles per gallon by 2025 showed how times, and senior executives, have changed in Detroit.

“These are business people who did not grow up and become conditioned to doing business in Detroit,” Sergio Marchionne, the head of Chrysler and its parent company, the Italian automaker Fiat, said at an industry conference here. “They accept the challenge of the new without being afraid.”

Mr. Marchionne, who has dual Italian and Canadian citizenship, took over the top spot at Chrysler when it emerged from its government-sponsored bankruptcy two years ago.

Similarly, the chief executive of General Motors, Daniel F. Akerson, joined the company from the Carlyle Group private equity firm after G.M. came out of Chapter 11. And at Ford, Alan R. Mulally was recruited from the aircraft manufacturer Boeing in 2006 to bring a fresh perspective to the automaker’s top ranks.

The three executives, Mr. Marchionne said, were not hamstrung by the litany of past protests by Detroit against tougher fuel rules mandated by Washington.

“This industry had a very bad habit of crying wolf,” he said. “Sooner or later, somebody is going to call your bluff.”

Mr. Marchionne’s observations were echoed by other attendees at the conference sponsored by the Center for Automotive Research, an industry research group, including environmentalists who locked horns with Detroit over fuel-economy in the past.

“It’s become really hard for the companies to say they can’t achieve these higher standards,” said Dan Becker, director of the Safe Climate Campaign, a group working to mitigate global warming. “I endorse Marchionne’s truth-telling. These new guys get it.”

Even the United Auto Workers union has shifted course and backed the new fuel rules, rather than bemoaning the potential job losses resulting from government mandates.

Bob King, who was elected the union’s president last year, said the U.A.W. was an “ally with environmentalists” and that he expected higher mileage rules to create new jobs in Detroit’s factories.

“They recognize that if you are adding technology to these vehicles, it should be their members who are doing it,” said Mr. Becker.

Still, not everyone in Detroit is as embracing of the new fuel rules, which require automakers to improve the efficiency of their cars by 5 percent annually from 2017 to 2025, and trucks by 3.5 percent each year for the first four years of the cycle, then 5 percent annually for the remainder.

“I personally saw it as political engineering,” said Sean McAlinden, the Center for Automotive Research’s chief economist. He said that government agencies were setting fuel targets based on a “mass of extrapolated exaggerations” about the gains that new technology could achieve.

But Mr. Marchionne was more in step with the overall sentiment that car companies need to embrace the new standards instead of criticize them.

“Anybody who surrenders 14 years before the date ought not to be in business,” he said, referring to the 2025 deadline for the new standards.

He said the government regulations could work if they were “technology neutral” and not weighted toward developing electric cars or vehicles powered by hydrogen fuel-cells. The new regulations are expected to offer credits for low-emission technologies, but the precise regulations are still being drafted by the government.

Instead, Mr. Marchionne advocated continued, incremental improvements in the internal combustion engine, including the size of engines and improving transmissions.

He cited the mileage improvements made on Chrysler’s new 300 full-size sedan. That sedan has a smaller V-6 engine than earlier models and a new eight-speed transmission, and its mileage has improved from 27 miles a gallon to 31 miles a gallon in the 2012 model, he said.

“The power-train guys are an incredible pool of talent,” he said. “Let them do their jobs.”

That view was shared by G.M. executive Charlie Klein, who leads a team of engineers responsible for meeting the new fuel-efficiency rules.

Mr. Klein said in a presentation that G.M. was stepping up work on existing technologies, including direct-injection engines, improved aerodynamic designs, and fuel management systems like engines that shut down when stopped and reactivate when the driver presses the accelerator.

Improving fuel economy is, he said, an open-ended quest that was hardly worth fighting over anymore. “It’s here to stay,” he said. “We might as well get used to it.”

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