Detroit Three
Detroit's auto makers are rebounding from the devastating recession that crippled two key players. But it's going to be a long road back.
Financial results from Chrysler Group LLC, released Monday, show that at least one of the big three is still on shaky ground, industry analysts say.
While Chrysler's second quarter numbers were improved compared to the previous quarter and revenues rose 8.2 per cent, it lost $172-million (U.S.), bringing its total losses so far this year to $369-million.
Chrysler's performance contrasts with stronger recent results from other key players: General Motors posted a first-quarter profit of $865-million and is expected reveal a second-quarter profit later this week; two weeks ago Ford declared its fifth consecutive quarterly profit; and Canadian parts maker Magna International Inc., whose customers include the Detroit majors, last week reported strong profits and boosted its dividend.
Chrysler, which emerged from bankruptcy protection a little over a year ago and is now run by Fiat SpA of Italy, was cautious about its outlook. "Chrysler Group is on track to achieve its goals, yet an extraordinary amount of work still lies ahead," chief executive officer Sergio Marchionne said.
That statement could be used to characterize the North American car business over all, according to Ken Elias, an analyst with automotive consulting firm Maryann Keller and Associates.
While U.S. car sales have recovered significantly, they are still far below prerecession levels, he noted, and likely to stay there until the U.S. economy recovers more strongly. "It is chugging along but it is not the rebound that people had hoped for."
Mr. Elias said Chrysler's status is "wait and see" until the company's new products start showing up in the third and fourth quarter of this year. So far, the only new vehicle it has announced publicly since it came out of bankruptcy protection is the 2011 Jeep Grand Cherokee, launched to great fanfare in the spring.
Because Chrysler is concentrated in North America more than the other two, it is even more dependent on a recovery in the United States' economy, Mr. Elias said.
Carlos Gomes, a Bank of Nova Scotia economist and auto industry watcher, said one of the reasons General Motors, Ford and Magna have been able to show such strong financial performance is that they have been so successful in cutting costs. Margins are improving significantly, but overall car sales are still considerably below prerecession levels, Mr. Gomes said.
He projects about 11.5 million unit sales in the United States this year, with that number moving to more than 12 million next year, still far below the average of about 16 million per year in the decade before the recession hit.
The industry won't be back to prerecession levels for "quite a while," Mr. Gomes said.
Still, auto analyst Joe Phillippi, who heads Auto Trends Consulting Inc. in Short Hills, N.J., said even Chrysler's numbers can be looked at in a positive light. "They were in pretty rough shape a year and a half ago," he said. "We are, in many respects, lucky they are still with us."
He noted that Chrysler is incurring a lot of upfront costs to get new vehicles launched and stale products updated, and the benefits won't come until later. Mr. Marchionne told analysts Monday the new product lineup will lay the groundwork for a "significant increase in performance in 2011."
In the meantime, the company said it is "highly probable" that it will boost its forecast for all of 2010 - which currently calls for sales of $40-billion to $45-billion and a razor-thin operating profit - when it announces its third quarter numbers.
All this redevelopment effort at Chrysler and its competitors is coming at time when the U.S. economy is "pretty damn sluggish," Mr. Phillippi said, and it follows the steepest decline the auto industry has ever experienced.
It will take a long time to climb back to a peak that was created by a culture of incentives that prompted many buyers to purchase bigger and newer cars than they really needed, he said. And because the cars now on the roads are much more durable and of a higher quality than vehicles made in the past, many consumers are not yet ready to go back to the showrooms.
"The industry is on its way back," Mr. Phillippi said, "but it is going to be a long, slow slog."