Fiat Chrysler raises outlook as Q2 profit jumps

By Colleen Barry and Tom Krisher
AP Business Writers

MILAN (AP) — Fiat Chrysler Automobiles raised its outlook last Thursday after strong North American sales and a European recovery drove second-quarter earnings up 70 percent despite hefty U.S. recall costs.

The rosy results come after the carmaker reached agreement with safety regulators to pay millions of dollars in penalties for delays in nearly two-dozen recalls. Fiat Chrysler also agreed to take potentially defective Ram pickups and older Jeeps off the road under the deal.

CEO Sergio Marchionne downplayed the overall cost of the actions, saying that the pickup buyback wouldn’t cost more than $20 million.

The Italian-American automaker reported a net profit for the quarter ending June 30 of 333 million euros ($364 million), compared with 197 million euros a year ago. Fiat Chrysler Automobiles NV also raised its full-year revenue forecast to 110 billion euros from 108 billion euros, on worldwide shipments of 4.8 million units, at the low end of the previous range. It maintained a net profit forecast of 1 billion to 1.2 billion euros.

Marchionne said the improved outlook is based on expectations of a continued strong performance in North America.

The news was viewed favorably by investors.

Although the Ram buyback offer potentially covered 585,000 trucks with faulty steering components, Fiat Chrysler said it already has repaired 410,000, and those customers aren’t eligible for the buybacks.

That leaves about 175,000 eligible for repurchase at the original sales price minus depreciation, plus a 10 percent premium.

In a consent agreement with the National Highway Traffic Safety Administration announced recently, FCA was assessed a record $105 million penalty for recall problems including delays in notifying customers, distributing parts and telling NHTSA of problems. It must pay a $70 million civil fine, plus make $20 million in safety-related improvements. It would have to pay another $15 million if it violates the agreement.

Marchionne said the company will pay the $70 million shortly, and said the buyback costs can be included in the $20 million. “We do not expect to incur any material cost beyond the $20 million available under the consent order,” he told analysts last Thursday.

Marchionne denied reports that Fiat Chrysler has delayed vehicles and will have few new ones in North America, which has been its biggest profit center. But he said the product portfolio has always been fluid.

“What we have not wavered on is the development of both powertrains and basic (vehicle) architectures,” he said.

Marchionne also said he did not think contract talks with the United Auto Workers in the U.S. would go past the Sept. 14 expiration date of the current deal nad said talks have been constructive so far.

The company’s North American pretax profit margin improved to 7.7 percent from 4.9 percent, a big improvement but still below rivals Ford Motor Co. and General Motors. Both GM and Ford margins were above 10 percent.

Fiat Chrysler North American sales were up 8 percent, boosted by the Jeep Renegade and new Chrysler 200, pushing revenues in the region up 40 percent. European volumes were up 12 percent, with revenue up 19 percent.

Latin American sales sank by a third due to weakness in Brazil and Argentina. Asian sales slipped 15 percent on increased competition in China, although revenues were flat.

Group net revenues were up by a quarter to 29.2 billion euros.

Fiat Chrysler is planning a public listing of a 10 percent share in Ferrari in the fourth quarter to raise capital. Marchionne also has been vocal about the need for consolidation in the industry, but hasn’t yet found a partner.

Marchionne said selling components maker Mangeti Marelli is not part of the near-term strategy, but didn’t rule it out over the long term.
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Krisher reported from Detroit.