Chrysler profit soars to $1.62B as Fiat completes takeover
Car company set to become Fiat Chrysler with headquarters in U.K. for tax purposes
Chrysler and Fiat will be known as Fiat Chrysler Automobiles NV as they move forward together as a single company.
Chrysler, in its final earnings release as a separate company, said its net income more than quadrupled to $1.62 billion in the fourth quarter, boosted by strong U.S. sales and a $962 million one-time tax gain.
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Without the tax benefit, the company still earned $659 million, a 74 per cent increase over a year earlier.
Fiat's board of directors agreed on the new name Wednesday, with headquarters for tax purposes in the United Kingdom. But the board sidestepped the thorny political issue of whether the true headquarters would be in the United States or Italy.
Chrysler props up Fiat
The announcement came on the same day that both Fiat and Chrysler announced fourth-quarter and full-year earnings. Chrysler once again propped up its parent company, which would have lost money without the U.S. automaker's strong profits.
The new company will maintain significant research, engineering and financial operations in Fiat's hometown of Turin, Italy, and on Chrysler's sprawling office complex in Auburn Hills, Mich. This avoids political controversies in Italy, where Fiat is the largest private employer, and in the U.S., where the government saved Chrysler by funding its 2009 bankruptcy.
The corporate line on the headquarters location is that it's on an airplane. Currently many of its 22-member leadership team have multiple offices in Auburn Hills, Turin and other parts of the world. Like Sergio Marchionne, CEO of both companies, they spend hours on corporate jets flying to meetings and to visit factories and other operations.
Joint design of vehicles
Little is expected to change in the way the company works. Already Chrysler and Fiat have joined to design three vehicles, the Dodge Dart compact, Jeep Cherokee SUV and the upcoming Chrysler 200 midsize car. All three models share engines, transmissions and other technologies developed in both places. The location of the corporate brain could change over time, but nothing about that was revealed Wednesday.
"They're not going to be moving people wholesale," between Michigan and Turin, said Morningstar analyst Richard Hilgert. For at least three years, the amount of time Marchionne has committed to leading the new company, "the brains are going to be flying back and forth between Auburn (Hills) and Italy," Hilgert said.
Fiat Chrysler said it remained committed to its manufacturing base in Italy, promising "no impact on headcount."
Marchionne has pinned the future of the Italian manufacturing plants on transitioning to higher-margin sports luxury brands Alfa Romeo and Maserati.
He said on a conference call that Fiat and Chrysler leaders are now working in unison. "I think we can move on execution at the speed of light," Marchionne said. Consolidation of the companies, he said, makes him more confident that FCA can reach a goal of selling one million Jeeps worldwide this year.
Marchionne said the new logo is a break from symbols now associated with each company. "It was designed effectively to provide the linkage between the two houses, as opposed to retention of one organization over another," he said.
Fiat sales sputter
Chrysler's strong quarterly and full-year performance helped to prop up Fiat, which has struggled as auto sales sputter in Europe. Fiat earned 252 million euros ($345 million) for the quarter, excluding one-time items. Without earnings from Chrysler, Fiat would have lost 235 million euros ($321 million). That's nearly double the loss from a year ago.
Fiat owned 58.5 per cent of Chrysler last year. It has since bought the rest from a trust fund that pays health care bills for union retirees in order to combine the companies.
Chrysler's 10th-straight profitable quarter came because of strong U.S. sales of Ram pickups and Jeep Grand Cherokees. Chrysler's U.S. sales, where it does 75 per cent of its business, rose 9 per cent last year to just over 1.8 million cars and trucks. Its average price per vehicle also rose by 2 per cent in the fourth quarter to $32,309, according to Kelley Blue Book. The company sold 2.4 million vehicles worldwide for the year, also up 9 per cent from a year ago.
For the full year, Chrysler earned $1.8 billion excluding tax benefits, its best performance since leaving bankruptcy in 2009.
Marchionne told Chrysler employees in an email that they would get performance awards based on last year's earnings. Under the United Auto Workers contract, 37,200 blue-collar workers will get about $2,500 in profit-sharing checks perhaps as early as next month.
Chrysler takes on debt to fund takeover
Chrysler also announced plans to take on up to $4.7 billion in term loans and notes. The money would pay for buying the trust's stake.
Fiat posted a profit of 943 million euro ($1.29 billion) for the year without one-time items, but it would have lost 911 million euros ($1.25 billion) without profits from Chrysler.
The Italian automaker's board of directors decided to scrap the company's dividend to maintain liquidity after buying the trust's stake in Chrysler for $1.75 billion (about 1.35 billion euros) in cash and another $1.9 billion in extraordinary dividends. The deal closed on Jan. 21.