Marchionne says Chrysler will be profitable by 2011

The buzz around Chrysler has been very negative, so it’s rather surprising to here CEO Sergio Marchionne express such confidence about the prospects for the company.

After a four-month deep dive into the workings of Chrysler Group LLC, Chief Executive Sergio Marchionne remains convinced the automaker can be profitable in two years.

The Auburn Hills automaker is on track to divulge its five-year plan on Nov. 4, to make public its quarterly financial statements next year and to offer public stock as early as 2011, he said.

A recent report by analyst Adam Jonas of Morgan Stanley supports Marchionne’s forecast. Jonas said Chrysler could report an operating profit of $841 million in 2010, but end the year with a net loss of $169 million. Full profitability is expected in 2011: $2.48 billion in operating profit and $952 million in net income, Jonas said.

In an interview with Toronto’s Globe and Mail, Marchionne affirmed Thursday that the automaker could reach profitability in 24 months. Just a week before, the CEO contended that “we’re not bleeding as people think we are,” noting that “the level of cost consciousness at this house is probably at a historical high.”

Some had been speculating that Chrysler might not make it another year given its challenges in the market. Marchionne had fueled some of the negative speculation when he said in September that the situation at Chrysler was “worse than we thought.”

Marchionne has an incredible track record as a turnaround specialist, but Chrysler will present the ultimate challenge. The acquisition could be a stroke of genius, as Fiat paid nothing and now owns 20% of the company with full control in exchange for the contribution of small-car technology. Fiat dominates with small cars and this offer it the opportunity to return to America. They also have Alfa Romeo which presents an upscale brand.

That said, it was reported recently that there would be a new push to turn Chrysler into an upscale brand positioned a notch above Lincoln and Cadillac. As noted by many analysts, that seems like a real stretch. Chrysler is a mess, so now consumers are supposed to start paying a premium for their cars?

In any event, it’s refreshing to hear some optimism coming from Marchionne. Hopefully he can back it up.


Fiat expanding into China with joint venture


Fiat’s Sergio Marchionne said he needed scale to compete, and now he’s plowing forward in China.

The Fiat Group announced a 50-50 joint venture on Monday with the Guangzhou Automobile Group to make cars and engines for the Chinese market, the latest move by the Italian automaker to expand outside its home market.

The companies said they would build a 173-acre plant in Changsha, in Hunan province, at a cost of more than $556 million, with production to begin by late 2011.

Upon completion of the first phase of development, the venture will have the capacity to make 140,000 cars and 220,000 engines a year.

The companies said capacity at the plant, which will make fuel-efficient, low-emission vehicles, could eventually be increased to 250,000 cars and 300,000 engines a year.

Sergio Marchionne, Fiat’s chief executive, has described the world’s carmakers as being in a struggle for survival, with only those of sufficient scale and efficiency capable of riding out the crisis. Fiat, which had revenue last year of $83 billion, acquired a controlling 20 percent stake in Chrysler Group LLC in June to gain access to the North American market.

The Guangzhou Automobile Group, a state-owned holding company, had 2008 revenue of $16 billion.

The company, which has joint ventures with major partners including Honda Motor Co. and Toyota Motor Corp., said it delivered more than 530,000 cars to customers last year.

Fiat has been looking for a new Chinese partner since it terminated a venture with Nanjing Auto in late 2007. A planned joint venture with Chery Automobile, China’s largest domestic carmaker, was to start production this year, but the project was put on indefinite hold in March.

Marchionne also said that Fiat is still interested in Opel as well.


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