Chrysler Posts Record First-Quarter Earnings
Riding a robust wave of minivan and pickup truck sales, Chrysler Corp. reported Tuesday that its first-quarter earnings more than doubled to $1 billion.
The stronger than expected showing--Chrysler’s best first quarter ever--allowed the nation’s No. 3 auto maker to post significant market share gains against its larger domestic rivals, General Motors Corp. and Ford Motor Co.
Chrysler’s bullish performance came as auto sales showed surprising zest in the year’s first three months. At the current pace, car and truck sales would hit 15.4 million this year, compared with 14.8 million last year.
Chrysler officials, however, remain a bit conservative and said they anticipate U.S. sales topping out at about 15.1 million. But that’s still 200,000 more than the company forecast previously.
Van Bussmann, Chrysler’s chief economist, credited the healthy auto market to improved consumer confidence and said it appears the “fabled soft landing” has taken hold. Auto makers may also have benefited from earlier-than-usual tax refunds and money freed up by a spate of mortgage refinancing before interest rates began heading back up, Bussmann said.
Strong consumer demand--particularly for minivans, sport utility vehicles and pickups--helped Chrysler post net earnings of $1 billion, or $2.61 a share, compared with profits of $496 million a year ago, or $1.33 a share. Revenues were $15 billion, up 10% from last year.
“Chrysler proves that it’s good to be in the Jeep and minivan business,” said David Healy, an analyst for Burnham Investment Research.
The auto maker’s earnings surpassed Wall Street’s expectations. First Call Corp., which publishes a consensus of analysts’ projections, said Chrysler was expected to post earnings of $2.45 a share.
Investors responded positively. Chrysler shares added 37.5 cents to $62.50 on the New York Stock Exchange.
The generally improved outlook also drove GM shares up 87.5 cents to $57.50, while Ford climbed 62.5 cents to $35.375, though both companies are expected to report major declines in earnings. Ford will report today and GM on Monday.
Analysts expect Ford’s first-quarter profit to tumble by two-thirds, to about $430 million from $1.55 billion. The decline reflects weaker sales and increased costs tied to the launches of its important 1997 F-Series pickup truck and 1997 Ford Escort and Mercury Tracer small cars.
GM also will see earnings dip significantly as a result of the 17-day strike that crippled the auto maker in March. The company said the walkout will result in a $900-million hit to first-quarter earnings, which analysts project at $1.08 billion, or half the $2.15 billion posted for the same period last year.
The problems of GM and Ford have allowed Chrysler to snag some market share at their expense. Chrysler now holds 16% of the U.S. market, up from 14.7% at the end of 1995. Both Ford and GM lost nearly a full percentage point of market share in the first quarter, according to the trade publication Automotive News. Ford’s market share is 25.9% and GM’s is 31.6%.
“We expect Chrysler to post market share gains into 1997,” said Paul Ballew, chief economist for J.D. Power and Associates, an automotive consulting firm.
Indeed, Chrysler recently announced that it will increase its production in the second quarter 18% above 1995 levels, while assembly forecasts by both Ford and GM are below last year’s levels.
“We are in great shape heading into the spring market,” said Robert Eaton, Chrysler’s chairman and chief executive. He noted that inventory levels were at a healthy level, car sales improving and truck demand very strong.
This is especially favorable to Chrysler since it sells a higher percentage of light trucks than its rivals. Industrywide minivan, sport utility vehicle and pickup truck sales are up 8% this year, while car sales are virtually flat.
Chrysler has been able to maintain its car sales by offering incentives and producing more stripped-down base models. At the same time, it has been able to sell its popular--and highly profitable--minivans and Dodge Ram pickup at full price.
Despite an average rebate of $640 per vehicle, the auto maker was able to nearly double its per-vehicle profit margin to 6.7%, compared with 3.6% a year ago. Chrysler earned $1,200 per vehicle.
First-quarter earnings a year ago were reduced by $350 million in costs related to its minivan launch, a $71-million charge to fix latches on minivans and a $96-million accounting charge related to rental car resales.
This year Chrysler said earnings were lowered by a charge for recalling vehicles with defective antilock brakes and costs associated with reaching a standstill agreement with investor Kirk Kerkorian. Analysts estimated those costs totaled $50 million-$60 million.
More earnings: D2
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Driving Ahead
Chrysler reported surprisingly good first-quarter earnings Tuesday. Net profit, in millions of dollars:
1996: $1,067
Source: Datastream
Researched by JENNIFER OLDHAM / Los Angeles Times
