This year has started off pretty well for Detroit's Big Three automakers -- for the most part. Ford (NYSE:F) and General Motors (NYSE:GM) have enjoyed surges in market share and sales while beating Wall Street estimates with their first-quarter numbers. But the story hasn't been quite as bright yet for Detroit's third automaker, Chrysler. Recently there's been chatter that Fiat might purchase the remaining shares of Chrysler and consider taking it public again. That would give investors another chance to trade their cash for Chrysler shares. If that does take place, here are some numbers you need to know and a red flag to consider.
As the company forewarned, the numbers for Chrysler's first quarter looked pretty ugly compared with its crosstown rivals. Chrysler's net income sank to $166 million from $473 million a year ago -- a 65% decline. Net revenue also declined to $15.4 billion from $16.4 billion a year ago. It wasn't all bad news, though, as cash on hand improved and net industrial debt decreased. Chrysler also grabbed some market share -- albeit less than rivals Ford and GM -- improving from 11.2% a year ago to 11.4%.
Results were affected by a decline in vehicle shipments, but costs incurred for Chrysler to launch two of its most important vehicles -- the Dodge Ram pickup and Jeep Cherokee -- also played a part. Success with both of those models is vital if Chrysler is going to post better profits later this year.
However, if Chrysler decides go public again, it would probably combine itself with Fiat for the IPO.
Fiat's numbers for the first quarter came in lower partially because of the poor earnings at Chrysler. Its overall trading profit (pre-tax income) fell 23% to $805 million dollars. For comparison's sake, that wasn't even half of Ford's $2.1 billion first quarter pre-tax income.
"This is a one-time event. It's a one-off," CEO Sergio Marchionne said. "Just close your eyes, plug your nose, and move on from here. I knew I was going to be limping in the quarter. I didn't know that I was going to be limping that much."
That quote doesn't exactly inspire confidence in potential investors, but there's also another red flag here, which my colleague John Rosevear recently dug into in more detail: According to recent data from CarFinance.com, Chrysler has more models in the top 10 bought with subprime loans over the past six months than any other brand.
Ford's subprime lending represents 5% to 6% of its loans -- which is in line with the industry average. Chrysler is a slightly different story: Experian Auto reported last year that 29% of Chrysler new-car loans in the first quarter were to subprime customers. That's way above the industry average.
If you're looking to play the automotive industry's rebound, I think Ford and GM are a much safer bet than Chrysler -- and have a lot of upside remaining.
Ford has substantial growth planned in emerging markets and is years ahead of GM with its operating efficiency and economies of scale. GM, on the other hand, is competing to be the global sales leader, and I believe it's undervalued. GM's stock price has been held down because investors are hesitant to buy stock when the U.S. Treasury still has to unload its remainder of GM shares. When that changes, and as GM continues with its busiest portfolio refresh in its history, its stock could rebound quickly.
Chrysler's situation with its subprime loans could work out just fine if managed correctly -- all those subprime loans might be a primary reason Chrysler's sales jumped 21% in 2012, after all -- but it's still a gamble nonetheless.