Chrysler Shows $300 Million Loss Through April; Plant to Close
By Mike Ramsey and Linda Sandler
"June 30 (Bloomberg) -- Chrysler LLC, closing plants as U.S. sales tumble, had an operating loss of about $300 million in the first four months of the year, less than projected by owner Cerberus Capital Management LP, according to documents provided to investors.
Cerberus had forecast a deficit of about $700 million, according to the report, presented at a June 12 meeting of the private-equity firm's financiers. The analysis preceded today's announcement that Chrysler will shutter a minivan factory and reduce production of pickup trucks because of declining sales.
Figures showing Chrysler is exceeding some of its owner's expectations follow growing questions about the third-largest U.S. automaker's health. On June 26, speculation in European financial markets forced Chrysler to say it wasn't considering bankruptcy.
``They have clearly been very, very aggressive on the cost fronts,'' said Mark Oline, automotive analyst at Fitch Inc. in Chicago. ``The challenge is to keep cutting costs at the same pace and exceed the revenue declines.''
Chrysler Financial, also owned by Cerberus and run as a separate entity, lost $67 million before taxes through March, compared with an anticipated $270 million profit.
Loan demand has fallen this year as the automaker suffered a 19 percent decline in U.S. vehicle sales through May. Record gasoline prices have sapped demand for light trucks, including profitable big pickups and sport-utility vehicles, which accounted for about 70 percent of Chrysler's sales last year.
Exceeding Expectations
The documents show Chrysler exceeding expectations set by Cerberus for reducing fixed costs. Total U.S. sales have dropped 8.4 percent this year and are headed to 15-year lows. Chrysler's U.S. volume has plunged as the automaker trims models, idles plants, eliminates jobs and cuts back on less-profitable sales to business fleets.
``We'd assumed several years of operating losses for Chrysler,'' said Timothy Price, a partner of Cerberus, who declined to discuss details in a phone interview. ``They're ahead of their plan, and doing a good job despite one of the most adverse economic environments in our lifetime.''
Chrysler, based in Auburn Hills, Michigan, said today it will close its St. Louis-area minivan plant by the end of October and scale back to one shift of production at its nearby Dodge Ram truck plant by Sept. 2.
About 1,500 jobs will be cut by closing the minivan plant; Chrysler will eliminate 900 additional positions at the truck plant.
Consumer Shifts
``We just don't see two plants of capacity, and so we were forced to take a plant out,'' President Tom LaSorda said in an interview. ``People shifting to other segments of the marketplace left us no choice but to respond.'' Chrysler also makes minivans in Windsor, Ontario.
Chrysler's revenue was $300 million less than projected through April, while its $8.1 billion in cash was $3 billion higher than planned, the document said.
Chrysler hasn't disclosed financial figures since being sold by Daimler AG to closely held Cerberus for $7.4 billion in August. Chrysler spokeswoman Shawn Morgan declined to comment on the document.
The report says Chrysler had an operating loss of $1.2 billion in 2007 on revenue of $59.7 billion and ended the year with $9.5 billion in cash.
Some of the figures differ from what's been reported previously. Chief Executive Officer Robert Nardelli this month said the company had $9 billion in cash at the end of last year. Chrysler attorney Michael Hammer said in court hearings in February that the company's 2007 loss was $1.5 billion.
Payroll to Fall
Chrysler's employment is expected to decline 12 percent this year and end 2008 at 63,700, split between 18,500 salaried workers and 45,200 hourly workers, according to the document.
Chrysler said its fixed costs were $3.9 billion through April, $500 million lower than expected. Capital spending totaled $800 million, about $300 million less than planned.
The loss at Chrysler Financial was attributed to lower- than-planned finance revenue of $1.43 billion and an unanticipated $300 million deficit from interest-rate swaps. The swaps are contracts in which two borrowers agree to exchange periodic payments based on the size of the outstanding debt and changes in prevailing lending rates."
To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6bloomberg.net; Linda Sandler in New York at
lsandler@bloomberg.net
Last Updated: June 30, 2008 19:50 EDT