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Chrysler moving in the right direction

DETROIT — Chrysler is stanching its losses, seeing increased demand for its cars and trucks and preparing for a major product rollout 14 months after emerging from bankruptcy protection.

But the automaker is far from healthy, and its CEO says Chrysler has more work ahead as it tries to make a profit and pay off government loans.

Chrysler Group narrowed its second-quarter loss to $172 million, a $25 million improvement from the first quarter, it said Monday. Revenue climbed 8.2 percent to $10.5 billion. U.S. market share is rising. The company, which was in Chapter 11 for most of the second quarter last year, has made steady progress since being taken over by Italian automaker Fiat in June 2009.

But there's a catch. Many of its sales — Chrysler won't say exactly how many — were to rental-car, government and corporate fleets, which are less profitable than sales to individual buyers. Chrysler has struggled getting individual buyers into its showrooms because of an aging lineup.

Chrysler CEO Sergio Marchionne said that will change when 11 new or revamped cars come to market between now and the end of the year. Among them are new versions of the Chrysler 300 and Sebring sedans, revamped minivans and a new Dodge crossover. Chrysler also hopes to lure buyers with the U.S. debut of the Fiat 500, a European mini-car that will compete in the niche occupied by the Mini.

Those models "lay the groundwork for a significant increase in performance in 2011," Marchionne said in a conference call with members of the media and analysts.

Chrysler has already gotten a boost from the 2011 Jeep Grand Cherokee, which came out in June and is the first new vehicle released since Fiat took over. The Jeep has a more-fuel-efficient engine and a new suspension system that can rise 10 inches for off-roading. Reviews have been positive, and sales surged 54 percent in July. Marchionne said Chrysler already has 70,000 orders for the Jeep and may add another shift to the factory that makes it.

George Magliano, an auto analyst with IHS-Global Insight, said Chrysler's results were stronger than anticipated, and the company is moving in the right direction. But he's concerned about Chrysler's level of fleet sales and its relatively high incentive spending. A lot rests on the cars and trucks coming to market this fall, he said.

Chrysler's U.S. market share has climbed to 9.4 percent, after a significant drop during its bankruptcy. But that's still below the 12.9 percent in the second quarter of 2007, the last time the company reported second-quarter results.

Chrysler was the only major automaker to see a drop in retail sales — or non-fleet sales to individual buyers — in the first six months of the year. Those sales dropped 21 percent for the automaker while they rose 11 percent on average for the industry.

Marchionne wouldn't confirm those numbers but said Chrysler is comfortable with the profits it makes on fleet sales and expects its fleet volumes to fall as new vehicles come out.

Some buyers may be shying away from Chrysler because of the stigma of accepting $15.5 billion in bailout money last year from the U.S. and Canadian governments. Chrysler, which has already repaid $3.9 billion, has promised to repay all of its loans by 2014. Marchionne said the company remains on track to have an initial public offering next year, which would help repay a portion of the loans.

In the meantime, the loans are dragging down profits. Chrysler paid $296 million in interest in the second quarter; without those payments, it could have made a net profit.

Chrysler's operating profit — or profit before interest and taxes — rose 28 percent between the first and second quarters to $183 million.

Marchionne said the company will most likely upgrade its forecast at the end of the third quarter. Right now, it expects to break even or make an operating profit of up to $200 million in 2010.

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