Chrysler Posts Record Profit of $2.38 Billion
Chrysler Corp. demonstrated Thursday that its recovery from its financial crisis of the early 1980s is virtually complete by announcing a record profit of $2.38 billion for 1984, more than triple the previous record of $700.9 million in 1983.
In the fourth quarter alone, Chrysler earned $609.7 million, more than five times its profit of $118.3 million during the same period last year.
Sales last year jumped to $19.5 billion from $13.3 billion. Quarterly sales increased to $5.3 billion from $3.8 billion.
$500 Bonuses for Employees
Chrysler Chairman Lee A. Iacocca also announced at a press conference here that Chrysler will spend $50 million of its profits to give each of its employees in the United States and Canada bonuses of $500, even though the company’s contract with the United Auto Workers does not include a profit-sharing provision. The workers will also receive another $500 in credit toward the purchase of a new Chrysler car or truck, Iacocca said.
Iacocca said Chrysler is offering the profit-sharing program, similar to plans now in effect at General Motors Corp. and Ford Motor Co., because the company’s workers “deserve this. They’ve earned it in work, in worry and in sacrifice” during the period when the company was near collapse.
Still, Chrysler may also have offered the bonuses with an eye toward improving management-labor relations before its contract talks with the UAW begin this summer. Chrysler’s contract with the UAW expires Oct. 15, and the union is virtually certain to seek big wage hikes because of the company’s profits.
UAW President Owen Bieber said in a statement that the special bonus “will in no way change the union’s overall position in collective bargaining later this year.” He added that the union will still demand that Chrysler workers return to wage parity with workers at GM and Ford. Chrysler workers took pay cuts four years ago to help the company avoid bankruptcy.
Sales Incentive Program
Executives at Chrysler are also getting their share of the company’s earnings. The company said it is setting aside $135 million for executive bonuses, although that is just two-thirds of the total that could have been paid under the company’s bonus formula. Chrysler’s directors said “substantially less” than the $135 million will actually be paid out in bonuses this year, with the rest held for bonus payments in future years.
Chrysler also announced that it is starting a new sales incentive program that will provide 4.4 million buyers of Chrysler cars and trucks between 1979 and 1984 with a credit of $500 toward the purchase or lease of new Chrysler products ordered by June 6. Chrysler’s Japanese imports are not covered by the plan.
Chrysler said the $500 credit will be sent to past buyers of Chrysler vehicles with a note from Iacocca thanking them for having faith in Chrysler products “at a time when faith was just about all that kept us in business.”
In order to help its sluggish sales of subcompacts and compacts, Chrysler has also begun offering 8.8% discount financing on some of its smaller cars and free automatic transmissions on its K-car compact models.
Chrysler’s financial performance was aided last year by the use of tax benefits, but Iacocca noted that the company is finally running out of the huge tax credits that it built up from its massive losses in the late 1970s and early 1980s. Chrysler paid about $50 million in federal income taxes in 1984, its first such tax payments since 1977.
“We are a full-fledged taxpaying citizen again and, believe it or not, that is a very good feeling,” Iacocca said.
Iacocca warned that Chrysler will have to pay even more taxes in 1985 and predicted that it will be difficult for the company to match its 1984 earnings this year on an after-tax basis. Analysts estimate that Chrysler will earn about $1.5 billion this year because of its bigger tax burden.
“But if they can maintain their current high levels of productivity--which have come because they are running their plants flat out--they could earn substantially more than that this year,” said Joseph Phillippi, automotive analyst with E. F. Hutton Inc. in New York.
Chrysler’s record earnings came as a result of a 36.2% jump in worldwide sales of cars and trucks during the year. Chrysler’s profitability soared because it was able to sell 2.03 million units in 1984 while keeping its break-even point--the sales level at which it begins to make money--from rising above its recessionary level of 1.1 million units, thanks to productivity gains in its factories.
