updated 4/21/2010 1:14:36 PM ET 2010-04-21T17:14:36

Chrysler Group LLC lost a staggering $3.8 billion from the time it left bankruptcy protection June 10 through the end of last year, but the automaker says its fortunes improved dramatically in the first quarter.

The struggling company, now run by Italy's Fiat Group SpA, cut its net loss to $197 million from January through March and said it posted an operating profit from selling cars and trucks, before interest and taxes.

Moreover, Chrysler said it generated $1.5 billion in cash during the quarter, raising its reserves to $7.4 billion and reducing the likelihood that it will need more government aid. And the company predicted its operations would break even or be slightly profitable this year.

The Auburn Hills, Mich., automaker said Wednesday that it made an operating profit of $143 million in the first quarter, excluding taxes and interest.

"This positive operating result in the first quarter is a concrete indication to our customers, dealers and suppliers that the 2010 targets we have set for ourselves are achievable," CEO Sergio Marchionne, who also heads Fiat, said in a statement. "We are also generating cash to finance the investments being made in our product portfolio and brand repositioning."

First-quarter revenue was $9.7 billion, up 3 percent from the fourth quarter, the company said. Revenue for the post-bankruptcy period of last year was $17.7 billion.

Chrysler said its operating loss for the last half of 2009 was $895 million.

Marchionne also announced Wednesday that Fiat will separate its industrial vehicle and auto businesses into two separate companies in order to "give birth" to a global automotive company — including Chrysler LCC — that aims to build 6 million cars by 2014. Plans for Chrysler were not immediately disclosed.

Noncash charge
The company also said the huge net loss for the second half of the year included a noncash charge of $2 billion as the company moved blue-collar retiree health care liabilities off its books to a trust fund run by the United Auto Workers union.

Chrysler last reported earnings in August 2007, just after it became a private company when it was sold by Daimler AG to private-equity firm Cerberus Capital Management. At that time, it reported a second-quarter profit of $549 million, although it said it would have lost money without a $946 million gain because it didn't book scheduled depreciation and amortization that quarter.

Cerberus didn't invest the cash needed to weather the worst auto sales decline in more than 25 years, and as a result, Chrysler came close to running out of money at the end of 2008. The U.S. government stepped in, authorizing $15.5 billion in aid and appointing Marchionne to run the company after it emerged from Chapter 11. Chrysler said it has not drawn $2.4 billion of U.S. and Canadian government aid.

Marchionne said the improved performance came from discipline in pricing its vehicles, a larger proportion of its sales coming from the profitable Ram pickup, and cost efficiency mainly from adopting Fiat's manufacturing system.

The company said its U.S. market share grew from 8.1 percent at the end of last year to 9.1 percent in the first quarter. Sales worldwide grew 5 percent over the fourth quarter of 2009 to 334,000 vehicles.

But there were also were signs that Chrysler could have a rough go in the future, especially in the U.S., its key home market. The company's U.S. sales grew 5 percent for the quarter, but lagged behind other automakers as the whole market grew 15.5 percent. About 40 percent of Chrysler's sales for the period were to rental car companies and other fleet buyers, which generally yield lower profits than retail sales to individuals.

Slow sales
Dealers also reported slow sales due to an aging product lineup. But Chrysler said that by the end of the year it plans to redo the slow-selling Chrysler Sebring midsize sedan and the Dodge Charger muscle car, as well as unveil a new Jeep Grand Cherokee sport utility vehicle and a new Chrysler 300 large car. Also coming in December is the Fiat 500 minicar.

Some industry analysts were skeptical of Chrysler's performance gains.

Max Warburton, an industry analyst with Sanford C. Bernstein in England, wrote in a note to investors last week that he thinks Chrysler's accounting profits are "almost irrelevant" and not comparable to other automakers.

"Positive cash flow is being driven by dealer restocking and stretching payables," he wrote in anticipation of Chrysler's earnings release. "We remain unconvinced Chrysler will survive in its current form despite Marchionne's blood, sweat and tears."

While Marchionne's cost cuts have been impressive, Warburton wrote that the company's capital investments have been minimal, and it has been arguing with parts suppliers about payments for machinery to build future products.

Chrysler's last full-year profit was in 2005, when it made $1.8 billion. The last time Chrysler reported a quarterly profit was in the second quarter of 2006, when it earned $65 million.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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