Chrysler Loses $690 Million Due To Special Charges

By Mani
Updated on

Chrysler Group LLC, the U.S. automaker now wholly owned by Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F), has reported a $690 million loss for the first quarter despite a 23% increase in revenues, which rose to $19 billion, and and a 10% increase in sales.

Chrysler has reported 49 straight months of year-over-year growth in U.S. vehicle sales, powered by its Ram and Jeep light-truck brands.

Performance dragged down by special charge

The U.S. automaker took a $504 million hit as it wiped out debt related to the prepayment of the United Auto Workers Retiree Medical Benefits Trust Note. The Auburn Hills automaker also incurred a $672 million charge because of a memorandum of understanding signed with the UAW to continue support of Chrysler’s World Class Manufacturing program. WCM trains workers to be more efficient and produce higher-quality vehicles.

Chrysler would have earned $486 million in the quarter, if the charges were excluded.

Chrysler’s deal with Fiat

In January, Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F) signed an agreement with the UAW Retiree Medical Benefits Trust (VEBA Trust) to acquire all of Chrysler Group. The $672 million charge was to fulfill commitments made to the UAW as part of the $4.35 billion deal with Fiat. Chrysler also confirmed its guidance for the year, including net income of between $2.3 billion and $2.5 billion and worldwide shipments of 2.8 million vehicles. The automaker also projects free cash flow of between $500 million and $1 billion for 2014, down from $2.1 billion last year.

For the last couple of years, Chrysler has been driving profits for Fiat, as its U.S. sales have risen sharply amid a rebounding auto market and popular new models like the Jeep Grand Cherokee.

For instance, Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F)’s annual report for 2013 revealed that earnings from Chrysler were one of the few bright spots. This shows the importance of the Chrysler acquisition to Fiat SpA, as without Chrysler, Fiat would have lost over 440 euros ($602 million) last year.

Chrysler, which had reported 10 straight profitable quarters, has provided most of the income for what is set to become Fiat Chrysler Automobiles NV later this year. The combined company, with a listing in New York and headquarters in London, will be the world’s seventh largest, said Sergio Marchionne, the chief executive officer of both automakers.

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