Chrysler has issuesFebruary 7, 2013: 2:32 PM ET
The U.S automaker's fourth-quarter profit was up 68%. That doesn't mean it isn't facing an uphill climb.
By Doron Levin
FORTUNE -- Sergio Marchionne has worked wonders keeping the alliance between Fiat and Chrysler steady and solvent since the latter's 2009 bankruptcy. But the repercussions of the sixth straight year of falling European sales on Fiat are now hitting Chrysler, forcing a tightening of capital budgets.
With future product plans an automaker's most accurate barometer, Marchionne last week signaled heavy weather ahead by canceling four new Fiat-based models, two for Chrysler and two for Dodge, that were to have been announced this year.
The product plan, an updated version of a 2009 strategy, also shows new models being added for the Fiat franchise in the U.S. – but not until 2015. Presumably Marchionne is banking on an improvement in Europe and Fiat by then. "My supposition is that the delays are about conserving cash," said Tracy Handler, principal analyst for IHS in Troy, Michigan. "The cars that were going to go to Chrysler, Dodge and Jeep are going to go to Fiat instead."
Another vehicle delayed will be a large seven-passenger Jeep sport utility under the revived Jeep Wagoneer name. The debut is now scheduled for 2015.
Chrysler was the only one of three Detroit-based automakers to gain U.S. market share last year, largely on the strength of vehicles like the Ram pickup, Dodge Caravan and Chrysler 200 and Chrysler 300 sedans. But the Dodge Dart, a new compact car based on a Fiat platform used by Alfa Romeo has lagged behind.
The Dart garnered strong reviews. The reasons why car buyers haven't responded enthusiastically range from fierce competition against the likes of Ford (F) Focus and Honda (HMC) Civic to the wrong mix of engines and transmissions to poor consumer regard for Dodge as a maker of small cars. "Chrysler has issues getting new buyers in the door in Dart's segment," said Dave Sullivan, an analyst for AutoPacific. He gave Chrysler high marks for spending extra time to make new models "perfect," rather than rush them into production.
Chrysler is developing a nine-speed automatic transmission that could lead to an improvement in the Dart's popularity and sales. Another critical initiative over the next few years will be the introduction of Alfa Romeo, starting with its 4C sports couple that will be shown this year and then five new Alfa models through 2016.
The U.S automaker's fourth-quarter profit was $378 million, up 68% from a year earlier. The quarter capped an impressive year in light of Chrysler's main impediment: that it's too small—even with the benefits of the Fiat affiliation—to generate sufficient profit to compete on a global scale against the likes of Volkswagen and Toyota (TM).
Marchionne, speaking in Turin on Feb. 3, said he intended to merge Fiat and Chrysler into a single car company in 2014. The result likely will be a new U.S.-based automaker. Meantime, he is vowing to build luxury Alfas and Maseratis in Italy and may initiate a new low-cost car brand for developing nations.
If he can achieve his initiatives Marchionne will have pulled another rabbit out of his hat, a feat that will be considered among the greatest in global automaking. His chances can improve considerably with a pickup—and very soon—of the convulsive European car market.