By on August 24, 2010

We’re hardly shocked by the idea that Chrysler won’t turn profit this year. After all, Auburn Hills has barely made its minimum monthly sales volumes (at best, and with rampant incentives and fleet mix) this year, and lost $50m+ in “industrial inefficiencies” on the Jeep Grand Cherokee launch alone [Q2 results analysis here]. With plans to close out the year with a non-stop barrage of product launches and attendant media spending, it would take a minor miracle for Chrysler to break even. But we’ve essentially known this all for some time… what’s truly shocking is that Chrysler’s CEO Sergio Marchionne actually admitted to the media that Chrysler won’t turn a profit.

Ever since Marchionne rolled out his Five-Year plan for Chrysler last October [full TTAC coverage here], he’s baited his critics and insisted that Chrysler would at least break even this year. And really, he’s had little choice but to stick to his guns, as the Chrysler turnaround is predicated on the assumption of continuous sales and profit growth. And after presenting himself as an anti-incentive, anti-volume-pushing executive, the sales, incentive and fleet mix numbers coming out of Chrysler are killing Marchionne’s credibility. Which is probably why he has finally admitted that, as the DetN paraphrases

it will be “difficult” for the automaker to turn a net profit this year.

It doesn’t sound like much, especially given that top-end estimates for 2010 financial performance in the Chrysler Five Year Plan estimated a maximum profit of $200m. But by Marchionne standards, this is a big admission. Not that he doesn’t have an excuse, of course.

And it’s an excuse that we’ve seen coming ever since Bertel picked up on the first hints of whining about liquidity at Auburn Hills. At yesterday’s factory tour with Vice President Joe Biden (money quote: “you’re doing a heck of a job, Sergio”), Marchionne trotted out the old cost-of-cash argument again, telling Reuters that

Chrysler would already be showing net profits if it had not borrowed from the U.S. Treasury in order to have operating cash… “All the money given to us was debt”

See, if taxpayers had just given Chrysler $14b with no expectation of ever seeing it again, there would be big profits in Auburn Hills right now. But then, what business wouldn’t turn a profit after getting its debt rinsed clean, its bad assets spun off, and a $14b no-obligation cash injection? But after suggesting that taxpayers are somehow responsible for Chrysler’s woes, Marchionne has the gall to claim that
We are delivering on everything we said. We are doing it quietly, keeping our head down
Which is patently untrue. Marchionne has made a sport of lashing out at his critics, while failing to deliver meaningful progress on the major problems facing Chrysler, namely that it can’t even make minimum volume without relying on fleets and incentives. If Marchionne were actually “doing everything he said he would do, quietly,” Chrysler might not be topping the industry’s fleet and incentive mix (or claiming that he could… Autosavant did the math and reckons Marchionne’s goal of a 25% fleet mix is mathematically as good as impossible). More to the point, when he did bring his head up to comment on Chrysler’s condition,  he might take ownership of the demand-side problems, rather than exacerbating them by blaming taxpayers for insufficient generosity. After all, GM has proved that perceptions can linger long after product starts improving. Blaming the bailout for a lack of net profit is not the way for Chrysler to work its way back into the hearts of American consumers.
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13 Comments on “Marchionne Blames Bailout For Profit-Free 2010...”

  • avatar
    Geo. Levecque

    One thing Chrysler should do is smarten up there advertising here in Canada instead of just copying USA material like in giving miles per gallon instead of the Metric equilvent, also you can’t contact Chrysler Canada either on e mail!

  • avatar

    So what would have been the alternative? Soldier on with the debt load that the company had at the end of 2008, a lack luster product line that buyers were snubbing and no money to even do face-lifts on those lack luster products?

    Without the bail out money Chrysler would be out of business right now and Fiat never would have considered acquiring it (for free). Life would certainly be simpler for Sergio right now, I’ll say that.

  • avatar

    Blaming the reason Chrysler is still breathing in the first place (the bailout) for not turning a profit is indeed pretty lame. I understand the pressure of a CEO to be optimistic, but Marchionne has been delusional from the start with his expectations for Chrysler.

    No one told Sergio to make stuff up (low fleet mix, minimal incentives, a 2010 profit, 1.1 million sales) but he did, and now the truth is coming out and he’s finding himself cornered by it.

    A company that is still on federal life support complaining that they can’t make profits is just as pathetic as a liquor store burglar with a gunshot wound complaining about the hospital food.

  • avatar

    Really? You read “Chrysler would already be showing net profits if it had not borrowed from the U.S. Treasury in order to have operating cash” (emphasis mine) as blaming the tax payer?

    The subject of the statement is Chrysler, they took the loan. There’s no suggestion anywhere in that that anything could have been done differently, nor any blame being attributed anywhere. Certainly it’s far fetched to claim that anyone’s suggesting the loan should have been free.

    I get that it stings to watch your native auto industry collapse and be sold off to foreign interests, I am British after all ;) Please though, enough with the hissy fits and recriminations every time Marchionne says… anything at all! It’s getting wearing.

    • 0 avatar

      What gets weary is the kid glove treatment Marchionne continues to get. He proclaims Chrysler sales will increase almost 300% over the next 4 years, not a word of criticism. He claims “operating” profits instead of actual losses, not a word. GM eliminates brands, Chrysler revives dead ones (Sebring, Avenger, Viper), not a word. He says they will run production to match sales and discontinue the “cash on the hood” method of selling cars even if it means cutting production, but their discounts and incentives continue to rank near the top.

      Ed is right, he has zero credibility. But the media is so terrified of a Chrysler failure, they act like fairy godmothers, sprinkling pixy dust around the man every time he speaks.

      He is spreading the BS around to buy himself time. And you can trust this boys and girls. Marchionne has a Plan B if and when it all hits the fan. And it doesn’t include Chrysler.

    • 0 avatar

      I haven’t seen any of this “kid glove” treatment you speak of, what I have seen a lot of is American car fans griping about their tax dollars and bemoaning the fact that Chrysler hasn’t been instantly re-invigrated with a new range of perfect vehicles (presumably to have been magically summoned from thin air?)

      “Spreading BS to buy time” as you put it, is a necessity borne of the situation Chrysler is in (which you’ll remember Marchionne didn’t create). If it isn’t backed up in good time with saleable products and a turn around then there’s a problem but right now I don’t see how things could realistically be being handled any differently. If the necessary hyperbole and spin annoy you that’s fair enough, but the alternative is letting the brands sink quietly into obscurity so that nobody remembers who you are by the time you have products developed worth selling. How would that be better exactly?

      As for Marchionne/FIAT having “a plan B if and when it all hits the fan…” – of course! That’s how restructuring works: You take your best shot at rescuing the bankrupt organisation you’ve taken on and if that fails you get the hell out of Dodge (pardon the pun). This is business. It’s not pretty and I understand that it’s galling from an American car lover’s perspective but it doesn’t mean the attempt at restructuring isn’t genuine, and I’d be astonished if anyone else who might have attempted to resurrect the Pentastar would be playing things any differently.

  • avatar

    Can someone with a better grasp of corporate finance answer this?
    Based on the e-mail to employees Sergio wrote;

    “Chrysler Group today released financial results for the second quarter of 2010 and I’m pleased to tell you that we remain on track to attain our goals for this year. We achieved an operating profit of $183 million in the quarter, bringing our total operating profit for the first half of the year to $326 million. The Q2 Operating Profit improvement of $40 million, compared to Q1, was driven primarily by increased vehicle sales.
    We increased our cash on hand by $474 million in Q2, which strengthened our cash position to $7.8 billion and brings our total available liquidity to more than $10 billion. This liquidity gives us the ability to develop the distinctive, quality products that are the foundation for building strong brands.”

    If Chrysler had not increased cash on hand by $474 million in Q2, could they have shown a profit?

    • 0 avatar

      When you are losing money (like Chrysler is), increasing your cash is generally done by borrowing, selling assets or not paying your bills.

      Anyone care to guess which one it is?

  • avatar

    Proof that even CEO’s can act like welfare queens if they’re given something for nothing.

    Hey Sergio, make a competitive product and you’ll be profitable. Till then, quit yer whining.

  • avatar

    Thanks, splateagle. Marchionne is not whining, he’s pointing out that, contrary to public opinion, Chrysler was not simply given billions of dollars by the taxpayer, it was loaned the money. Nowhere in his statement do I hear any suggestion that the money should have been an outright gift from the federal government. The bile being spewed here is utterly uncalled for and Mr. Niedermeyer doesn’t even have his facts straight: Chrysler’s fleet percentage has indeed been excessive but its per-vehicle incentive spending in July ranked below both GM and Ford.

    Obviously the Fiat/Chrysler management made some overly optimistic projections about sales and profits. No one could have known exactly how things would play out over the course of the year, and without a little optimism it’s hard to imagine how anyone in Auburn Hills could even get up for work in the morning.

    • 0 avatar

      Yeah, I don’t have my facts straight… if you cherry pick one month out of this year. Through July, Chrysler has a significant lead in the incentive wars. Chrysler could well have done worse this year, no question… but that doesn’t mean Marchionne shouldn’t lose credibility over the gap between his promises and reality. It also doesn’t mean that ignoring the underlying problem in favor of whining about an insufficient bailout is the recipe for future success.
      As for the bailout, Chrysler’s bankruptcy was far more harmful to legal precedent and secured bondholders than GM’s, it turned the company over to a foreign firm and the UAW, and it kept some very sick brands on life support. If Fiat/Chrysler needed more cash, they had their chance to ask for it… but ultimately, they’re just lucky the Pentastar wasn’t sacrificed to the gods of the market (as penance for the more expensive but relatively-more-justifiable GM bailout).

    • 0 avatar

      “they’re just lucky the Pentastar wasn’t sacrificed to the gods of the market (as penance for the more expensive but relatively-more-justifiable GM bailout).”

      Oh great, another “Chrysler should die so that GM can live” (as in get more of Uncle Sam’s money). I just threw up in mouth.

  • avatar

    It’s really just a question of how you spin the statements made by Mr. Marchionne. The way I spin it- Chrysler has done extremely well to survive in a devastated market, while revamping its complete product line up. The fact that it is still selling its older models at the rate of 95k a month should tell you that some people still value their product, fleet or not. ( In the retail business, a sale is a sale, and discounting is very common.) The fact that Chrysler still exists is in no small part due to his policies, and I am personally grateful for that. I am continually surprised, especially at journalist’s, who keep expecting an instantaneous turnaround. If you had made these comments a year from now, I would agree with you, but right now the patient is just coming off life support, give it time to heal before you pronounce it dead. FIAT was handed a stinking pile of s**t by Cerberus and DCX that they spent 10 years building. No one can turn that around in the brief time Sergio has had to work with. If they break even this year, that will in itself be a near miracle. As I said, save this column for a year, and if Chrysler hasn’t made huge improvements by then, I’ll eat the paper it’s printed on. ‘Nuff said

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