Chrysler Finds It Can Be Profitable Selling Fewer Cars

Unlike its domestic rivals, Chrysler Group isn't expected to report a profit for 2010. But the smallest of the Detroit Three has made substantial strides in turning around its business, including lowering the number of vehicles it needs to sell to make a profit, its chief executive said this week.

"Due to better-than-expected performance, we estimate the operating profit break-even point has been lowered to about 1.5 million vehicles," CEO Sergio Marchionne said in comments at the North American International Auto Show in Detroit on Wednesday.

The revised break-even figure "would equate to U.S. industry (annual) volumes in a range of 10.5 to 11 million units -- a true sea change from the break-even levels prior to the bankruptcy," said Marchionne, who is also CEO at Italy's Fiat.

"Well Positioned" for 2011 and Beyond

Chrysler, which emerged from bankruptcy in 2009, sold nearly 1.6 million vehicles worldwide last year. As part of its five-year post-bankruptcy business plan, the automaker pegged 1.65 million as its operating break-even point.

"From an operating margin standpoint, they are very well positioned as the market moves ahead and continues to gain traction not only in 2011 but 2012 and 2013," Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., told Bloomberg News in an interview.

Rivals General Motors (GM) and Ford Motor (F) have made similar gains in reducing their break-even points, a necessary adjustment in expectation of reduced industry volume during the next few years.

Chrysler, which is preparing for an initial public stock offering this year, is expected to post a net profit in the fourth quarter and an operating profit for the year. But high costs of interest on government loans will prevent the Auburn Hills, Mich., automaker from posting a net profit for 2010.

Marchionne Looks to Global Sales

Marchionne's plan calls for the company to turn a profit in 2011 by expanding global sales. Unlike Ford and GM, the bulk of Chrysler's sales come from North America. Marchionne wants to use Fiat's distribution network to more than double Chrysler's global sales to 2.8 million and produce $5 billion in operating income by 2014, Bloomberg noted.

Chrysler plans to begin selling stock in the revived company during the second half of 2011, or about a year after GM's public stock offering last November. GM raised about $20 billion in its stock sale and reduced the government's share in the automaker to about 33% from more than 60%.

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Unlike GM, however, the U.S. Treasury doesn't hold a substantial stake in Chrysler, which means the federal government would have less of a say in Chrysler's IPO.

For Chrysler to move forward with its stock sale, it would, among other things, need to refinance its federal loans to reduce the interest burden. "Our goal is to refinance this debt at more favorable rates, as the level of interest we are currently paying has kept us from posting better net results," Marchionne said in his comments Wednesday.

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