DETROIT - The country’s third-largest automaker said Tuesday that its sales picked up in the second quarter because of strong U.S. demand for trucks and sport utility vehicles.
But the company cut its target for full-year sales and profit, blaming persistent problems as it adds more shifts and ramps up production on Ram pickups and the Jeep Cherokee.
“You need to remember that in 2010 we produced 1 million cars. We’re now at 2 ½ times that level,” Chrysler Chief Executive Officer Sergio Marchionne said during a conference call with analysts and reporters.
Marchionne said making sure Chrysler has enough parts from suppliers has been a problem. It’s also working out the bugs in new components. Engineers are still making adjustments to the Cherokee’s new nine-speed transmission, for example, even though the first Cherokees began rolling off the line in June.
Chrysler also is adding more workers. A second shift of 1,100 people will start making Cherokees next month and 1,250 people will start making transmissions in Kokomo, Ind., early next year.
Chrysler isn’t the only automaker with problems increasing production. Ford Motor Co. delayed the release of the new Lincoln MKZ sedan this spring because of production and quality issues.
But Marchionne said Chrysler is unusual because it’s updating so many products and parts at once. He also said Chrysler had a lot of catching up to do when its majority owner, Italian car maker Fiat SpA, brought it out of bankruptcy four years ago.
“The insistence on quality that was introduced with the new Chrysler back in 2009 is forcing a level of scrutiny that is certainly unusual for Chrysler historically,” Marchionne said.
Chrysler’s first-quarter sales suffered because it was slow to release new versions of the Ram pickup and Jeep Grand Cherokee, two of its most popular vehicles.
U.S. Ram sales rose 30.4 percent over last year as construction companies and other small businesses raced to replace aging trucks. It was the Ram’s best second quarter since 2007. Grand Cherokee sales soared 27 percent.
Chrysler sold 643,000 vehicles worldwide in the second quarter, up 10 percent from a year ago. Sales also were up 10 percent in the U.S .,where Chrysler sells 75 percent of its vehicles. Chrysler’s U.S. sales rose faster than the industry average of 8 percent in the second quarter.
Still, because it lost first quarter sales and will be slow to launch the new Cherokee, Chrysler doesn’t expect to meet the targets it set at the beginning of this year. The Auburn Hills, Mich.-based company now expects to ship 2.6 million vehicles worldwide in 2013, at the low end of its goal of between 2.6 million and 2.7 million. It expects to earn between $1.7 billion and $2.2 billion, down from its previous target of around $2.2 billion.
Chrysler said its net income rose 16 percent to $507 million in the April-June period from $436 million a year ago. It was Chrysler’s eighth straight quarterly profit.
Revenue rose 7 percent to$18 billion from $16.8 billion.
Chrysler still expects full year revenue of $72 billion to $75 billion. Chrysler Chief Financial Officer Richard Palmer said customers are adding more features and paying more for their vehicles, so even if sales slide, revenue won’t. Buyers paid an average of $29,100 for Chrysler vehicles in the second quarter, up $800 from last year, the company said.
Chrysler is also benefiting from sales of moneymakers such as the Jeep Grand Cherokee. Car-pricing site Kelley Blue Book said U.S. buyers paid an average of $40,294 for a Grand Cherokee in the second quarter, up 9 percent from a year ago.
U.S. sales were up for the company’s Dodge, Fiat, Jeep and Ram brands; only the Chrysler brand, with aging models like the Town and Country minivan, saw sales drop.
Chrysler took a $151 million charge in the second quarter for the recall of 1.56 million older model Jeep Libertys and Grand Cherokees. Dealers are installing trailer hitches on vehicles made between 2002 and 2007 to mitigate the risk of a fire after a rear-end crash. Dealers also are inspecting another 1.2 million Grand Cherokees from the 1999 to 2004 model years to make sure their hitches are on correctly.
Marchionne said Chrysler doesn’t expect to have to pay out any more for that recall, even though the government’s investigation continues. Chrysler initially refused the order to recall the vehicles but reached a compromise with the government in mid-June.
Business, Pages 25 on 07/31/2013