Three Chrysler factories were slow to switch from old models to new ones, and that helped dramatically reduce the company's first-quarter profit.
Three Chrysler factories were slow to switch from old models to new ones, and that helped dramatically reduce the company’s first-quarter profit.
The Auburn Hills, Mich., automaker said Tuesday that its net profit fell 65 percent from January through March, mainly because production didn’t keep pace with sales.
Chrysler freshened up the Jeep Grand Cherokee large SUV and its Ram heavy-duty truck for the new model year, and is replacing the Liberty midsize SUV with the all-new Jeep Cherokee. But the plants that make those vehicles were slow to crank out the new models.
Chrysler’s profit dropped from $473 million a year ago to $166 million. Revenue dropped 6 percent to $15.4 billion. Total inventory fell to 419,000 last quarter, enough to supply dealers for 66 days of sales, down from 73 at the end of last year.
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Chrysler and other automakers book revenue when cars and trucks are shipped to dealerships. But while Chrysler’s global and U.S. sales rose 8 percent during the quarter, the slow plants drove shipments down 6 percent.
“We sold all the cars that we could potentially sell,” CEO Sergio Marchionne said Monday. “I did not build enough to replenish what we sold.”
Chrysler shipped 574,000 cars and trucks during the quarter, down from 607,000 a year ago. And the three vehicles that ran short are all high-price, big-profit vehicles.
Marchionne mostly blamed the decline on the end of production of the aging Liberty at a factory in Toledo, Ohio. That factory is being completely retooled to build the Cherokee, which will go on sale in the third quarter. With no production at the plant, Liberty shipments plummeted by 31,000 for the quarter.
The Toledo plant won’t be cranking out Cherokees until late spring or early summer because the company installed all-new equipment to produce a radically different vehicle built on car rather than truck underpinnings. The new Cherokee comes with a nine-speed automatic transmission instead of the Liberty’s four-speeds, and it has a high-tech all-wheel-drive system that automatically disengages two wheels when they’re not needed, in order to save fuel.
But the amount of retooling caused added kinks in production compared with other factories, Marchionne said.
“Maybe it’s the fact that we haven’t done this with this intensity for a while, it’s difficult to tell,” he said. The Cherokee is the company’s first entirely new vehicle since the Dodge Dart compact came out a year ago.
Marchionne didn’t specify problems with the other two factories, the heavy-duty Ram plant in Saltillo, Mexico, and the Grand Cherokee factory in Detroit. He did say the 2014 Grand Cherokee, while not a completely reworked model, got major improvements such as a new engine and new eight-speed transmission.
Marchionne said the company is sticking to its full-year net earnings prediction of $2.2 billion based on the expectation of a strong second half. Chrysler also held to previous guidance of full-year revenue between $72 billion and $75 billion and shipments of 2.6 million to 2.7 million vehicles. The company expects to ship more than 650,000 cars and trucks in the second quarter.
He characterized the first-quarter decline as a “one-off” event, and said he told workers to “just close your eyes and plug your nose and move on from here.”
The 2014 Grand Cherokee went on sale last month, while the 2013 Ram Heavy Duty trucks went on sale starting in January.
Marchionne said that Cherokee sales should boost second-half profit. The midsize SUV will compete against the Honda CR-V and Ford Escape in the biggest part of the fast-growing crossover SUV market.
Marchionne conceded that hitting the forecasts won’t be easy. “There’s not a guy in this house who thinks it’s going to be a walk in the park,” he said.
Michael Robinet, managing director of IHS Automotive, an industry consulting firm, said the Ram, Grand Cherokee and Liberty bring big dollars to Chrysler, so it’s not surprising that any production loss hurt the company’s net income.
Robinet expects more automakers to see delayed launches as they try to preserve quality while moving faster to update vehicles to meet intense competition. Chrysler, for instance, has about a dozen new or refurbished models coming in the next two years alone.
Also during the first quarter, Chrysler’s incentives such as rebates and low-interest financing rose $300 per vehicle to $3,400, compared with $3,100 a year ago, the company said. “The incentives hit your bottom line,” said Jim Hall, managing director of 2953 Analytics of Birmingham, Michigan.
Chrysler’s quarter looked much worse when compared with Ford Motor Co., which last week said its first-quarter profit rose 15 percent to $1.6 billion as record earnings in North America tempered big losses in Europe. Ford’s sales were up 10 percent worldwide.
Fiat was given management control of Chrysler in 2009 when the troubled company nearly ran out of cash and had to be rescued by a U.S. government bailout. Now, with Europe battered economy dragging down car sales there, Chrysler is providing a financial lifeline to Fiat, which owns 58.5 percent of Chrysler.
AP Auto Writer Dee-Ann Durbin contributed to this report.