Chrysler achieved positive operating profit of $183 million in Q2

Chrysler Group LLC on August 9 issued its financial results for the second quarter 2010.

In Q2 2010, Net Revenues increased to $10,478 million representing an 8.2 percent improvement over the prior quarter. First half 2010 Net Revenues totaled $20,165 million.

The Company ended Q2 2010 with an Operating Profit of $183 million and a first half 2010 Operating Profit of $326 million.

“The second quarter operating profit confirms that Chrysler Group is on track to achieve its goals, yet an extraordinary amount of work still lies ahead,” said Sergio Marchionne, chief executive officer, Chrysler Group LLC. “Customer traffic in our dealerships and confidence in the Company’s future continued to grow with the launch of the all-new 2011 Jeep Grand Cherokee, one of the signature vehicles for Chrysler roup. The Grand Cherokee sets the standard for this Company to produce high quality, technologically advanced vehicles.

“2010 is seen as a year of transition and stabilization. With most of our 16 all-new or refreshed products launching later this year, including the all-new Chrysler 300, Dodge Charger, Dodge CUV, the iconic Fiat 500, and the Chrysler Sebring replacement, Chrysler Group must continue to be rigorous, disciplined and focused on the task at hand,” Marchionne said.

The Q2 2010 Operating Profit improvement of $40 million, compared to Q1 2010, was driven primarily by continued volume increases. This improvement was partially offset by the impact of the Jeep Grand Cherokee changeover and moderate increases in incentive programs. Industrial costs increased due primarily to the ramp-up of ER&D expenses for the new product offensive starting in the second half of the year, partially offset by continued manufacturing efficiencies.

Modified Earnings Before Interest, Taxes, Depreciation and Amortization (Modified EBITDA) was $855 million, or 8.2 percent of Net Revenue, a $68 million increase from Q1 2010; first half 2010 Modified EBITDA was $1,642 million.

Net Interest Expense in Q2 2010 was $296 million, including a non-cash interest accretion of $58 million. Net Interest Expense was $591 million for the first half of 2010.

Net Loss in Q2 2010 was reduced to $172 million as compared with $197 million in Q1 2010, driven by the increase in Operating Profit. Net Loss for first half 2010 was $369 million.

Cashat the end of June 2010 was $7,841 million compared to $7,367 million at the end of Q1. An additional $2.3 billion remains available to be drawn under Chrysler Group’s U.S. Treasury (UST) and Canadian and Ontario government loan agreements, bringing total available liquidity above $10 billion.

Gross Industrial Debtat June 30, 2010 remained at $11.2 billion. Net Industrial Debt improved to $3.4 billion, as a result of positive cash flow of $474 million.

Worldwide vehicle sales were 407,000 units for Q2 2010, an increase of 22 percent compared to 334,000 units in Q1 2010, with all brands posting gains. U.S. market share improved to 9.4 percent in Q2 2010 from 9.1 percent in Q1 2010. In addition, Canadian market share was a strong 12.9 percent as a result of sales increasing 32 percent versus Q1 2010. Throughout the quarter, sales showed steady growth as brand repositioning efforts and investments in marketing campaigns continued to drive increased customer traffic into dealership showrooms.

Worldwide vehicle shipments in Q2 were 433,000, representing an increase of 14 percent versus Q1 2010. U.S. vehicle shipments totaled 305,000, representing an increase of approximately 16 percent versus Q1 2010. 3

Chrysler Group maintained a U.S. dealer inventory level consistent with its higher sales performance, increasing from 208,000 vehicles at Q1 2010 to 222,000 vehicles on June 30. Days supply increased slightly to 60 days (from 58), ensuring that Chrysler dealers will be able to service customers during the model year changeover period.

Significant Events: Second Quarter and Subsequent to June 30, 2010
On May 21, the Company celebrated the production launch of the all-new 2011 Jeep Grand Cherokee at the Jefferson North Assembly Plant (JNAP). Concurrently, Chrysler Group announced the addition of a second shift of production with about 1,100 employees hired. In preparation for the new product, JNAP went through a complete transformation as part of World Class Manufacturing, taking the plant to world class levels of flexibility and competitiveness.

The Jeep Grand Cherokee quickly garnered widespread global opinion-leader accolades and also received the “Top Safety Pick” award from the Insurance Institute for Highway Safety (IIHS) – the highest rating the organization bestows.

On July 30, more than 1,500 UAW-represented employees welcomed President Obama to JNAP. The President visited the plant to see a company on the road to recovery and to congratulate employees for their contributions to Chrysler Group’s success.

During the second quarter, Chrysler Group announced two significant investments in its Kokomo, Ind., facilities. In May, the company announced a $43 million investment in new equipment and tooling that will expand operations at the Kokomo Casting and Kokomo Transmission plants. On June 9, an additional $300 million investment in Indiana Transmission Plant I and Kokomo Casting was announced that will ready the plants for the production of a new, highly fuel-efficient, eight-speed automatic transmission. The investments will result in nearly 1,600 new or retained jobs.

As part of the process to integrate the distribution activities of Fiat Group Automobiles and Chrysler Group in Europe, in May 2010, the two companies began the reorganization and integration of the Chrysler and Lancia sales networks. This integration will lead to the creation of an integrated network of over 1,000 dealerships across Europe by 2014.

Chrysler Group expects that its European and South American sales will double between 2010 and 2011, to nearly 200,000 sales, an increase largely attributable to Chrysler’s ability to leverage Fiat’s international distribution networks. During the second quarter, distribution of Chrysler Group vehicles under this new integrated business model began in Italy, France, Sweden, Denmark, Germany, Belgium and the Netherlands.

In May, Chrysler Group established an agreement with Santander Consumer USA to provide new-car financing at attractive rates to consumers with credit scores below 650, traditionally considered non-prime customers. Ally Financial remains Chrysler Group’s preferred prime lender. 4

In addition to the Jeep Grand Cherokee, in the second quarter, the Company introduced an all-new 2011 Ram Chassis Cab commercial truck, the 2010 Dodge Viper SRT10 ACR-X special-edition model of America’s ultimate sports car, and the Mopar 2010 Dodge Challenger, the first-ever special-edition Mopar version of the Dodge brand’s iconic American muscle-car.

Chrysler Group vehicles continued to win awards in the second quarter. The all-new 2010 Ram Heavy Duty and Dodge Nitro were named the Top Heavy Duty Pickup and Top Mid-Size Sport Utility, respectively, in the AutoPacific 14th annual Vehicle Satisfaction Awards (VSA). VSA is the industry benchmark for measuring how satisfied an owner is with their new car or light truck. Earlier in the year, the iconic Jeep Wrangler was named the “Best and Most Significant 4X4 Vehicle of the Decade” by Four Wheeler magazine editors.

On July 2, Chrysler de Mexico, a subsidiary of Chrysler Group LLC, entered into a financing arrangement with Bancomext and Nafin, for the Mexican peso equivalent of $400 million. The facility was fully drawn in July. The proceeds are to be used to finance the production of the Fiat 500 at the Toluca, Mexico, plant.

The dealer arbitration process concluded in July with more than 70 percent of arbitrator decisions in Chrysler Group’s favor. About 4 percent of the 789 dealers rejected during the bankruptcy process prevailed in arbitrations. Chrysler Group issued a Letter of Intent to each of the prevailing dealers to join Chrysler Group’s dealer network, provided they meet financial and operational prerequisites.

On July 30, the company announced that its Sterling Heights (Mich.) Assembly Plant, which was scheduled to close after 2012, will remain open beyond that date. Management is working with city and state officials to finalize certain related tax incentives. Chrysler Group will also add nearly 900 jobs on a second shift of production scheduled to start in the first quarter of 2011.

2010 Outlook
Pending the closing and reporting of Q3 financials, the Company confirms the following targets for the year:

• Net Revenues of $40 - 45 billion
• Operating Profit of $0.0 - 0.2 billion
• Modified EBITDA of $2.5 - 2.7 billion
• Negative Free Cash Flow of $1.0 billion

It is highly probable, in view of the company’s performance to date and its forecast of trading activity in the remainder of the year, that the company will upgrade guidance for 2010 when announcing Q3 2010 results.