Crude oil futures dropped the morning after Navy Seals killed Osama bin Laden, though they were off just 27 cents per barrel as I write this. Both the economy and the price of gasoline have altered American car-buying habits, such as they are. We’re buying sedans and crossovers and have cut back on big pickups, with construction fleet keeping that last segment at a decent level, down to 10+ percent of the market from roughly 14 percent before the Great Recession. The midsize truck-based SUV segment, which was so big and so profitable in the ‘00s, has virtually disappeared. The Detroit Three have updated their fleets to reflect these shifts, and now even Chrysler Group LLC has been able to benefit. Its $116 million net profit for the first quarter of 2011, small as it was, represents the company’s first black ink as a new company. It was Chrysler’s first net profit, in fact, since 2006, before Daimler sold the automaker to Cerberus. For the first quarter of 2010, Chrysler Group lost $197 million.
During and after bankruptcy, Chrysler virtually brought production to a halt, and sold off existing stock at heavy discounts. U.S. sales began to pick up last year, and by the end of the first quarter of ’11, sales rose 23 percent, to 286,950 units for Q1 ’11 versus 234,215 for Q1 ’10. The global numbers look pretty good, too. International sales were 394,000 (including 50,000 in Canada and 20,000 in Mexico) for the quarter, up from 334,000 (45,000 Canada, 19,000 Mexico) a year earlier.
The 2007 United Auto Workers contract, and the further concessions from the 2009 bankruptcy are finally starting to kick in. Chrysler can make money on cars, even low-margin models like the new 200 and even as it has to pay incentives to move leftover Sebrings, for example.
Average Transaction Prices (ATP) are up, using Chrysler’s calculation based on J.D. Power & Associates data. The ATP for a Chrysler Group vehicle was $27,300, with a $3,800 average incentive, in Q1 ’10. This dipped to $27,000 ATP with a $4,200 average incentive in Q2 ’10. For Q1 ’11, the ATP is $28,300 with a $3,400 average incentive.
The question now is whether timing is good for new, truly improved cars like the Chrysler 300, as $4 gas becomes commonplace. Monday morning, Marchionne said the new models so crucial to Chrysler’s near future are rolling out slowly, to make sure quality is good.
New Chrysler 200s, 300s and Jeep Compasses “are hitting the market as we come out of Q1,” Marchionne said. “I still have an adequate inventory on the ground (on those models, but…). We need to fill the pipeline to sell them.”
After years of storing unsold cars and trucks on lots all over Metro Detroit, and then trying to force them on a bloated number of dealerships, inventory got as low as 179,000 in December 2009, with a 58-day supply. As inventories grew in ’10, the days supply ranged from 58 to 63. In March, Chrysler had 302,000 vehicles in inventory, a 67-day supply.
Perhaps Chrysler has found its level. While Marchionne intends to grow sales and market share by 2014, a 60-day supply is considered ideal.
Chrysler reports that Q1 ’11 net revenues were up 35 percent, from $9.7 billion in Q1 ’10. Modified operating profit was $477 million this first quarter, up from $143 million for last year’s first quarter. Cash on hand was $9.9 billion on March 31, up from $2.5 billion on December 31, 2010.
Marchionne says Chrysler dealerships have an average of fewer than two 200s in stock, right now. While it’s just a band aid job on the less-than-mediocre Chrysler Sebring, the 200 is a heavily advertised move in the right direction, much like the 2008-11 Ford Focus, with decent styling.
Chrysler still relies heavily on trucks, of course. The Ram pickup (previously the Dodge Ram) is up 39 percent for the quarter, to 52,739.
Ford Motor Company last week reported a healthy $2.55 billion first quarter profit, up from $2.09 billion in Q1 ’10. General Motors reports first quarter earnings on Thursday.
This comes as gas prices reach new highs. In Metro Detroit, the average price for regular unleaded hit $4.15, up 17 cents over the past week. Prices have been fairly high for the whole quarter, though, and so far the result seems to be that Chrysler 300 shoppers may downsize from Hemi V-8 to 3.6-liter V-6, not to a 200 or Dodge Caliber.
The Detroit Three said the ’07 UAW contract would allow them to earn profits on smaller cars, not just SUVs and trucks. So far, their promises are proving true, though the margins are still fairly thin. It remains to be seen whether the UAW will get greedy and try to win too much back in the ’11 negotiations. UAW President Bob King’s decision not to pick a single of the Detroit Three as a “strike target” is encouraging, though.
Just one more thing, for comparison purposes. ExxonMobil earned $10.65 billion net income in the first quarter, up from $6.3 billion in Q1 ’10. BP posted net income of $7.2 billion for Q1 ’11, up from $6.2 billion.
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