DETROIT -- Chrysler Group may not survive in its current form even after posting an “astonishing” profit in March, an auto analyst said in a report on Thursday.
Analyst Max Warburton, of Bernstein Research in London, said many questions remain about CEO Sergio Marchionne's rescue strategy for the U.S. automaker despite his very “impressive” efforts to slash costs.
The report comes less than a week before Marchionne is scheduled to unveil his five-year restructuring plan for Fiat Sp.A. in Turin on April 21. Warburton said Marchionne likely will announce that Chrysler, rescued from bankruptcy last year by Fiat, came close to breaking even for the quarter after a profitable March.
“We remain unconvinced Chrysler will survive in its current form despite Marchionne's blood, sweat and tears,” Warburton said in the report, which was written as an analysis for Fiat investors.
Shareholders need to consider what Marchionne's strategy might be if he can't preserve Chrysler as it exists today, he said.
“A slimming down of Chrysler to be just Ram, Jeep and a U.S. production base for Fiat looks a realistic exit strategy to us,” said the report.
Chrysler spokesman Gualberto Ranieri declined to comment.
Bernstein Research said it based some of its conclusions on interviews with four “very senior industry sources in Detroit.” The report doesn't identify where those sources work and doesn't spell out their connection to Chrysler.
The report praised the CEO's cost-cutting efforts: “Marchionne and team are reportedly ‘again and again' finding fixed cost savings” in key areas. Those cost-cutting measures have helped the company come “surprisingly close to breakeven” in the first quarter, the report said.
“While we believe Chrysler is set to show progress in Q1 2010, at least from an accounting perspective, we remain cautious about a full turnaround given the massive challenges the business faces,” the report says.
Those challenges include:
• Limited new-product development despite efforts to bring Fiat-based vehicles to North America.
• A skimpy product portfolio.
• “Very limited” synergies between Fiat and Chrysler.
The report also said Marchionne's targets for hitting 14 percent market share in 2014, the end of the current five-year plan, were not realistic. Chrysler's U.S. share was 9.2 percent at the end of the first quarter, and the company has targeted a range of 10 percent to 11.2 percent for 2010. The last year Chrysler held share above 14 percent was 2000.
“Chrysler's real cost structure is tough to assess, as no real financial statements have been published since 2007 and accounting treatments remain opaque,” says the report.Warburton says Chrysler's prospects would brighten considerably if the U.S. housing market recovers, boosting sales of the company's most profitable vehicle, the Ram pickup.
Warburton estimates Fiat's current stake in Chrysler at $1.6 billion. Fiat owns 20 percent of Chrysler.