Chrysler and the Fiscal Cliff

Chrysler is the most well-run car company based in America, at least based on its financial results. For the most recent quarter, it posted an increase in net income of $381 million, up 80% from the same period a year ago. Revenue rose 18% to $15.5 billion. Chrysler’s lack of exposure to overseas markets gets much of the credit for the results. That advantage will continue to work, unless the fiscal cliff crushes the American economy. Then Chrysler will be hurt by lack of production and sales in regions outside the United States, particularly China.

Chrysler management reported worldwide vehicle shipments totaled 559,000 in the quarter, up 19% from 469,000 a year ago. Chrysler’s chief, Sergio Marchionne, was able to brag about the improvement. The news gave him a moment of relief. He also runs Fiat, the sales of which have been eviscerated by the trouble EU economy. He can say, at least, that he took no real action to move Chrysler into Europe despite the size of Fiat’s dealer network. If he ever had such plans, he decided to keep them secret so his investors would not view him as reckless.

One part of the U.S. economy that the fiscal cliff is expected to hurt most is car sales, which have been brisk for more than a year. Americans face stark increases in their taxes. Many millions will lose most of their discretionary income. For these Americans, the ability to afford a new car will be beyond their reach. Chrysler’s sales will fall, along with those of any other manufacturer with a large U.S. presence.

Chrysler came out of Chapter 11 as the weakest of the Big Three, because of its low market share and limited capital. The company proved these challenges were not enough to prevent it from having a string of successful quarters. Now it has something that new products and broad demand for them cannot help — a U.S. economy that could quickly grind to a halt.

Douglas A. McIntyre