Chrysler Swings to Profit; Industry-Wide U.S. Car Sales in January To Show Gains

on January 31 2012 4:57 PM
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Chrysler Group LLC swung to a profit last year on strong U.S. sales of its Jeep models, confirming auto analyst expectations that the industry is shifting into high gear.

Chrysler reported Wednesday 2011 net income of $183 million compared with a loss of $652 million in 2010. Sales reached $54.98 billion, a 31 percent rise from 2010.  

Later Wednesday, auto manufacturers are expected to report healthy year-over-year January sales increases, according to industry analysts.

Chrysler has seen gains in retail sales and through new, fresher and redesigned models. Edmunds.com senior analyst Michelle Krebs also pointed to the poignant ad campaign Chrysler launched nearly a year ago during the 2011 Super Bowl. The tagline, Imported from Detroit, pushed the Made in America sentiment.

Chrysler's momentum has been nothing short of remarkable, especially when it was on its last lifelines as recently as two years ago, said Michelle Krebs said, a senior analyst at Edmunds. It's poetic that Chrysler is receiving this well-deserved recognition almost exactly one year after its 'Imported from Detroit' ad campaign debuted during the Super Bowl, which was really the big turning point for the company. Playing into the Made in America sentiment, that ad touched a nerve among U.S. car buyers.

According to auto Website Edmunds.com, other car companies are expected to report good news as well. Ford Motor Co. January U.S. sales are expected to rise by about 10 percent, while Nissan Motor Co. and Toyota Motor Corp. are estimated to have percentage gains in the mid-single digits . Overall, automakers in the U.S. are predicted to sell cars at an annualized rate of 13.6 million, up from 12.8 million a year ago and 11.4 million in 2011.

However, GM is the outlier. After an incentives-heavy sales push in January, 2011, the world's No. 1 automaker cut its incentive spending per vehicle by about 35 percent last month and sales are expected to drop by more than 9 percent, Edmunds and auto analysts TrueCar.com said.

By backing off on incentives, GM is joining the rest of the industry which has been by fits and starts for the past five years increasingly downsizing and streamlining factories, focusing on design and paying attention to customer preferences in hopes of figuring out a path to be profitable while selling fewer cars at closer to full price. (For GM), last year it was, 'Gain market share at any cost,' said Ivan Drury, an analyst at Edmunds.com.

As a group, the top automakers are expected to post sales gains of about 6.7 percent. Annualized sales of 14 million is a far cry from 2007 when U.S. sales hit a high for the decade of 16.1 million.

Given these lower sales figures, U.S. automakers have to do a better job of managing supply and demand - and hold down costs - in order to be profitable.

If you look at how long the vehicles stay on the lot, it's a really good indicator of whether or not you're making too many cars, Drury noted. You're seeing a lot of automakers in line with realistic expectations, or at the industry average.

The average number of days vehicles were in dealer inventory (or days to turn) in December 2011 stood at 51, 65 and 66 for Ford, GM and Chrysler, respectively. The industry average is 60. January's days-to-turn numbers are not available until later in the month.

Going forward, U.S. automakers must continue to relentlessly build for demand through carefully constructed supply chains that are long on coordination between manufacturing units and factories. Only a healthy, lean auto industry capable of prospering from lesser sales numbers, analysts said.

 I know it's like, 'Duh,' said Chuck Parker, the publisher of Automotive Digest. But managing the supply chain in the past has been a huge issue, to the extent that manufacturers have had to sell off large numbers of vehicles that were not moving to rental companies -- thank God for Enterprise.

That has migrated away. With it has gone incentives. With it has come inventory management. With it has come pricing that consumers are accepting, are aware of, and gaining confidence in.

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