Chrysler Rides SUV to Record First Quarter

Despite offering steeper discounts on its vehicles, Chrysler Corp. reported record first-quarter earnings of more than $1 billion on the strength of hefty profit from its newest sport-utility vehicle and sedans.

The Auburn Hills, Mich.-based auto maker overcame rebates averaging $1,230 per vehicle--$520 higher than a year ago--with increased sales of such high-profit vehicles as the new Dodge Durango sport-utility.

The No. 3 domestic auto maker also said it reduced costs by about $300 million in the first quarter through savings from suppliers, increased manufacturing efficiencies and lower spending on materials and administrative expenses.

The results, better than analysts expected, are the latest evidence that U.S. auto makers are continuing to prosper through operational improvements in an intensely competitive sales environment typified by lower prices and more model offerings.

Chrysler earned $1.05 billion, or $1.60 per fully diluted share, in the first quarter. That is up 2.2% from a year ago when it earned $1.03 billion, or $1.45 per share. Sales rose 4.2% to $16.8 billion.

Thanks to the company’s recent stock-buyback program, the results set an all-time record for Chrysler earnings per share.

“Our performance this quarter shows that we can respond in a difficult environment and continue to move the company forward,” said Chrysler Chairman Robert Eaton.

Chrysler shares rose 44 cents to $43.50 on the New York Stock Exchange.

Ford Motor Co. also jumped $2.38 to $46.88 and General Motors Corp. added 88 cents to $67.44 on the NYSE, in part attributed to anticipation that their first-quarter earnings, to be reported next week, would also top forecasts.

David Healy, analyst for Burnham Securities, said that Chrysler was aided by a richer mix of new, profitable vehicles, reduced leasing, cost-cutting and improved performance by its Canadian, Mexican and financial services units.

“And they accomplished improved earnings in the face of what amounts to a $500-per-vehicle price cut,” he said.

Chrysler officials told analysts they expect average sales incentives to increase in the second quarter by as much as $200 in response to aggressive pricing moves by competitors.

“The marketplace is getting extremely competitive,” said James Donlon, Chrysler vice president and controller. “We will have to respond.”

The incentive outlook is prompting concern among analysts. David Garrity, analyst with CIBC Oppenheimer, said that a 10% or more increase in rebates in the current quarter would pressure profits. Chrysler’s incentive costs increased by $465 million in the first quarter compared with a year ago, far more than it was able to trim in operating costs, he notes.

“Their cost-cutting is not keeping pace with their incentives,” Garrity said. “Life is not going to get easier.”

The Durango was the biggest contributor to Chrysler’s increased earnings, along with the new Dodge Intrepid and Chrysler Concorde mid-size sedans. Analysts estimate the company makes $10,000 to $12,000 on each Durango it sells. It sold about 43,000 in the first three months of the year.

Garrity estimates the Durango contributed 40 cents a share to Chrysler’s earnings. But other model lines are under intense pressure, including its minivans, which account for nearly a quarter of Chrysler’s sales.

New minivan models have arrived or are coming from Toyota, Ford and Honda. Chrysler already is offering $1,000 rebates on minivans to try to protect its commanding market share.

Company officials are confident that they can largely offset higher incentives with cost-cutting. Chrysler reduced costs by $1.2 billion last year and expects to trim another $1.4 billion this year, Donlon said.

Donlon said Chrysler is in its strongest financial position ever with modest debt, over-funded pensions and a $7.9-billion cash reserve. “The books are as clean as they can get,” he said.