By Brent Snavely, Detroit Free Press
DETROIT — Chrysler lost $690 million during the first three months of the year because of costs of repaying debt and repurchasing shares held by a UAW trust.
The Auburn Hills, Michigan, automaker said it spent $504 million to repay debt to the UAW Retiree Medical Benefits Trust and also recorded a $672-million charge to cover the cost of purchasing shares held by the trust.
For the first three months of the year, Chrysler would have earned $486 million without those expenses of nearly $1.2 billion. That’s almost triple the $166 million profits the company reported for the same period a year ago.
The charges are part of a $4.35 billion deal struck between Fiat, Chrysler and the UAW trust that paved the way for Fiat to own all of Chrysler. It was the first time Chrysler reported a quarterly loss since the second quarter of 2011.
“I think we are going to see a strong improvement in the second quarter, but we are going to have a back-loaded second half,” said Richard Palmer, Chrysler’s chief financial officer, because of the launch of the 2015 Chrysler 200 sedan.
Palmer said Chrysler began shipping the all-new Chrysler 200 last week. The 200 is a midsize sedan that is substantially better than the outgoing model.
Chrysler continues to report its financial results on a stand-alone basis even though it is fully owned by Italian automaker Fiat because of outstanding bonds on the U.S. market.
The automaker’s first quarter revenue rose 23 percent to $18.9 billion. Chrysler’s total cash decreased to $12.4 billion from 13.3 billion at the end of 2013. Chrysler’s cash declined because the automaker also made a $1.9 billion payment to the UAW trust as part of Fiat’s acquisition agreement.
Palmer said Fiat and Chrysler eventually wants to restructure its bond debt that is due over the next two years but is still weighing its options.
“We clearly need to look at simplifying the capital structure of the group at an FCA level,” Palmer said. “We are looking to diversity our debt between Europe and the U.S.”
The Auburn Hills automaker’s earnings results come less than a week after Fiat and Chrysler CEO Sergio Marchionne presented an ambitious five-year strategic plan that calls for global sales of the combined automaker to increase global sales from about 4.4 million to 7 million cars and trucks by 2018.
Fiat’s stock fell 12 percent last Wednesday, the day after Marchionne presented the plan.
“We’ve had a phenomenal run in 2014 … and I am not surprised that people took some money off the table,” Marchionne said last week. “The plan is aggressive.”
Fiat’s stock fell 7 cents, or 0.86 percent, Monday to close at 7.47 euro per share.
Chrysler’s first quarter performance was aided by the introduction of the Jeep Cherokee, brisk sales of its Ram pickups and a U.S. industry that continues to see gradual sales increases.
Globally, Chrysler sold 621,000 new cars and trucks during the first three months of the year, up 10 percent from a year earlier. In the U.S., the company’s market share grew to 12.5 percent for the first quarter, up from 11.4 percent last year.
Chrysler also confirmed previous guidance for the year that it will earn between $2.3 billion and $2.5 billion this year before one-time charges and world-wide shipments of 2.8 million vehicles.
Last week Fiat reported a first-quarter loss of 319 million euros ($444 million) during the first three months of the year.
Fiat also was affected by a 315 million euros ($418 million) charge related to the cost of paying the UAW Retiree Medical Benefits Trust for the remaining Chrysler shares and the devaluation of Venezuela’s currency.
Fiat and Chrysler announced a deal on January 1 that called for the automakers to acquire the 41.5 percent of Chrysler owned by the UAW Trust for $4.35 billion. That deal closed on January 21.
Now, the two companies are working toward the completion of the merger and a name change to Fiat Chrysler Automobiles. That name, along with an exchange of Fiat shares for shares in Fiat Chrysler Automobiles, will be up for a vote by Fiat shareholders this summer.
Fiat and Chrysler are hoping to list the stock of the combined company under the symbol FCA on the New York Stock Exchange by October 1.
The company headquarters will be located in London, which will help Marchionne avoid political backlash both in Italy and the U.S.
“It’s clear that … group executive functions, the board, my office, and some of my functions need to operate out of London,” Marchionne said during a news conference for CNH Industrial, an agricultural equipment manufacturer that he also leads. “That doesn’t mean I give up my operating responsibilities in the U.S. I will still do that.”
AFP Photo/Stan Honda
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