AUBURN HILLS, Mich. -

Third-quarter results are showing the alliance between Chrysler and Fiat is not only working — it’s thriving because the relationship is producing vehicles analysts believe consumers want.

On Thursday, Chrysler Group reported preliminary net income of $212 million for the third quarter, compared with a net loss of $84 million a year ago as the company continues to increase sales and benefit from its alliance with Fiat S.p.A.

In the third quarter, Chrysler tabulated its net revenue to be $13.1 billion, a 19-percent increase from a year earlier driven by increased demand for the OEM’s 16 all-new or significantly refreshed cars and trucks.

The company generated a modified operating profit of $483 million for the quarter, or 3.7 percent of net revenue, up from $239 million, or 2.2 percent of net revenue, in 2010.

Automaker management stressed modified operating profit benefited from increased sales volume and improved pricing and mix, partially offset by increased advertising and industrial costs.

“In the third quarter, Chrysler Group achieved increased sales and positive financial results, totally in line with the plan we laid out in November 2009,” Chrysler chairman and chief executive officer Sergio Marchionne declared.

“And in October, together with the United Auto Workers, we crafted a solid four-year contract that will support us in our growth plans and significantly reward our employees for their contribution to the revival of Chrysler,” Marchionne continued.

“This house continues to be fully focused on financial performance and making outstanding cars and trucks by fully leveraging its alliance with Fiat,” he added about the Italian OEM that now holds 58.5 percent of Chrysler after paying back U.S. and Canadian loans and buying out the taxpayers’ shares.

Analysts Explain Reasons for Chrysler Performance

A day after another domestic automaker revealed its third-quarter performance, several industry analysts extended the positive commentary about another member of the Big 3 on Thursday.

TrueCar vice president of industry trends and insights Jesse Toprak told Auto Remarketing that, “It looks like another positive quarter from a domestic automaker showing that the signs of life that we’ve seen from Chrysler earlier in the year being the real deal.”

“What we see here is a lot of the issues that created a certain level of uncertainty for Chrysler are being take care of,” he continued. “One was the UAW contract that was just ratified. That now gives more clarity for the automaker’s future.

“It also shows that just the like other two domestic automakers, Chrysler is now able to make money despite low sales volume in the U.S. That is due to the dramatic steps they took to cut costs, create efficiencies and improve their product portfolio,” Toprak added.

In light of Chrysler nearly disappearing, Toprak called Chrysler’s current level of performance “a remarkable transformation.”

Toprak pointed out, “I think we’re taking it a little bit for granted now about how well and how quickly Chrysler was able to transform from a company that was almost written off by some to a carmaker that is highly competitive in just a matter of two years.

“For any automaker to be successful, product comes first. Product is king,” he went on to say. “In this case, if consumers did not have a wider acceptance of Chrysler product, they could have made all of the improvements they could in cost accounting and efficiencies, but at the end of the day if you can’t sell your car nothing else matters.

“The biggest reason for Chrysler’s major transformation has been the significant improvements they’ve made in their lineup of vehicles,” he insisted.

In assessing Chrysler’s performance, Edmunds.com senior analyst Michelle Krebs went back to the numbers.

“Chrysler is outpacing the industry this year with sales up 26.1 percent third quarter to third quarter and 23.1 percent for the year,” Krebs said in a message to Auto Remarketing.

“In addition to higher vehicle sales volume — thanks largely to Jeep — Chrysler has lowered incentives, and that’s helped to boost the average transaction price. That’s the not-so-secret formula for accomplishing profits and a turnaround,” she continued.

Despite the strengthening financial and market performance, Toprak shared one cautionary element he sees still being associated with Chrysler.

“Chrysler, despite introductions of smaller vehicles in their lineup, is still the domestic automaker that has the highest reliance on sales of SUVs and trucks, which means because of seasonality this fourth quarter should help them in term of earnings,” Toprak explained.

“Having said this, when you sell a lot of SUVs and trucks, it’s an advantage. When gas prices are up, it’s a disadvantage,” he conceded.

“As a longer, healthy strategy, the one thing Chrysler needs to continue to improve upon is further cutting down on the reliance of on SUVs and truck sales and creating an even more balanced product portfolio,” Toprak added.

Does that mean the fourth quarter should be even better for Chrysler?

“Chrysler, just like anybody else who sells cars in the U.S. market are highly dependent upon the overall economy and consumer demand levels,” Toprak responded.

“If (Thursday) is any indication in the stock market, things appear to be going to toward the positive direction in the fourth quarter,” he continued. “As long as the consumer demand holds, Chrysler should expect a very good quarter and end the year with a positive note.”

Like analysts from Edmunds.com and TrueCar, Kelley Blue Book’s Alec Gutierrez stood impressed by Chrysler’s third-quarter performance.

“Chrysler’s third quarter performance, both in terms of sales and earnings, should provide reassurance to those who wondered if Chrysler could succeed under yet another European automaker,” said Gutierrez who is KBB’s manager of vehicle valuation.

“The $212 million profit posted by Chrysler is only the second positive quarterly earnings figure since they filed for bankruptcy in 2009,” he pointed out to Auto Remarketing.

“Although Chrysler has made notable progress during the past few years, they still have a long way to go before they return to the 14 percent share of sales they held in 2007,” Gutierrez conceded. “Chrysler’s market share was already in decline when Cerberus took over for Daimler in 2007 and for the few short years that Cerberus was in control, Chrysler suffered. Under Cerberus, innovation was non-existent while product quality declined and as a result, Chrysler’s share of U.S. sales dropped from 14 percent in 2007 to a low of just under 9 percent in 2009.”

When Fiat took over in 2009, Gutierrez  admitted the industry really wasn’t sure what to expect.

“While Fiat’s long-term plans for Chrysler are still underway, it appears as though thus far, the partnership has been a success,” he surmised. “Since taking over in 2009, Chrysler’s share has increased to 10.6 percent of all sales through September, an 18.4 percent improvement from their 2009 low.

“In fact, Chrysler’s share of sales in both August and September hit 12 percent overall, just 2 points shy of their 2007 high,” Gutierrez went on to highlight. “Chrysler’s resurgence is primarily driven by the significant improvement in the overall quality of their products they are producing today. In fact, Consumer Reports just named Jeep the top domestic brand in their latest quality survey, putting them at No. 13 overall.  The Chrysler 200, all-new Dodge Durango and Jeep Grand Cherokee are but a few of the major redesigns that have put Chrysler back on the buying public’s radar.

Like Toprak, Gutierrez noted that all of Chrysler’s work is far from completed.

“Although Chrysler has made solid gains and appears to be headed in the right direction, they can’t stop pushing forward just yet,” Gutierrez stressed.

“Hyundai and Honda aren’t too far behind Chrysler in terms of U.S. share and as Honda begins to replenish its U.S. inventory they may push to once again surpass Hyundai in overall market share.  In addition, Hyundai plans to dramatically increase sales next year and given the positive reception of their latest redesigns, they could perceivably surpass Chrysler if they are able to increase their production capacity sufficiently to meet demand.

“While Chrysler is doing well, they still have many needs,” he added to Auto Remarketing. “Chrysler still doesn’t offer a small car to compete with the likes of the Honda Civic, Toyota Corolla, Hyundai Elantra, Ford Focus and Chevrolet Cruze, but it may only be a matter of time before they are able to leverage Fiat’s vast portfolio to bring a c-segment competitor to the states.  It is expected that Dodge will be getting a compact next year to replace the Caliber, but there is no word yet on a Chrysler-specific compact so for now, it looks as though Chrysler will have to make do with its current portfolio.”

Marchionne Elaborates on Why Alliance Works

Earlier in the week during a speech in Turin, Italy, Marchionne entertained an assembly with his usual vivid analogies and references from subjects well outside of the auto industry, looking back at the global recession that began in 2008 and how Fiat came into the picture when Chrysler entered into bankruptcy.

“Fiat was too small, too tied to the small car segments and too dependent on the European market to have any chance of survival,” Marchionne explained. “It was imperative that we find new ways of sharing costs and expanding the product range, as well as finding new opportunities and reaching new markets.

“And that was when we seized an opportunity the likes of which we will probably never see again: the alliance with Chrysler,” he insisted.

In 2008, Marchionne described the U.S. auto sector as having been “laid to waste by the financial tidal wave and a managerial class that had poorly managed the need for change.

“It provided Fiat an opportunity to gain recognition for its technological know-how and commitment to sustainable mobility, as well as its ability to bring fuel efficient engine technologies and architectures to the United States, and its experience in managing a turnaround,” he continued.

Marchionne describes the alliance as allowing Chrysler and Fiat to be able reach achievable goals.

“On one hand, it meant being part of the rebirth of the American car industry, encouraged by President Obama, and saving a company like Chrysler that was losing almost $1 billion a month in early 2009,” Marchionne recapped.

“On the other, it gave Fiat the opportunity to access the U.S. market and expand its product portfolio into the medium-large segment, which historically has always been one of its weakest areas,” he continued.

As a result, Marchionne said this partnership “between two perfectly complementary companies was the salvation of both.”

Marchionne is expecting Chrysler and Fiat to see about 4.2 million vehicles this year, becoming the fifth largest automaker in the world. By 2014, he projects the companies to increase that figure to 5.9 million units.

“It may be too early to appreciate the full potential of this alliance, beyond the strategic value of forcing us to converge architectures and components and providing us access to the NAFTA market,” Marchionne acknowledged.

“Let me just give you one figure that speaks for itself,” he went on to say. “A while ago I told you that in 2008 Fiat — which then included both Fiat and Fiat Industrial — had achieved the highest trading profit in its 109 years of history.

“Based on the guidance already given, we are confident that Fiat and Fiat Industrial will together break this record in 2011,” Marchionne projected.

More Details about Chrysler Labor Deal

As Marchionne referenced when discussing third-quarter results, Chrysler confirmed on Wednesday that a new national labor agreement, covering 26,000 employees, has been ratified by the UAW-represented workforce in the U.S.

Through the term of the new agreement, Chrysler also confirmed plans to invest an additional $1.3 billion to retool and upgrade plants for the production of new products, bringing the company’s total U.S. investment to $4.5 billion.

Additionally, the automaker may add 2,100 new jobs in addition to the more than 2,500 jobs previously added.

“No one involved in the bargaining process leading to this agreement could forget about our near death experience slightly more than two years ago and the second chance we were given by the American and Canadian taxpayers. The faith that was placed in us then has been fully repaid,” Marchionne declared.

“This agreement is a credit to our workforce and the UAW leadership,” he continued. “It recognizes the significant contributions they have made toward our continuing recovery. It rewards them for the current and potential future success of the Company while ensuring Chrysler Group will be able to remain competitive.”

The OEM explained the agreement recognizes hourly employees with a simpler and more transparent profit sharing plan that directly aligns with the company’s performance.

In addition, management noted a new quality performance-based bonus is being implemented that will give employees an opportunity to benefit from improvements in the initial quality of Chrysler vehicles.

The new agreement also rewards employees with an annual upside bonus if World Class Manufacturing metrics are achieved.

Since June 2009, Chrysler has announced investments of more than $3.4 billion in its U.S. facilities and has made significant progress toward building a successful enterprise, including:

—Confirming a $165 million investment in its Sterling Heights Assembly Plant (Mich.) for the construction of a new body shop as well as equipment and conveyors.

—Investing $72 million in the Toledo Machining Plant (Ohio).

—Confirming a $114 million investment to repurpose about one-fifth or nearly 400,000-square feet of the Trenton North Engine Plant (Mich.) for the production of core components for the Pentastar engine produced at Trenton South.

—Investing nearly $1.3 billion into the company’s existing transmission manufacturing facilities in Kokomo, Ind., to accommodate production of a new advanced front-wheel drive automatic transmission; increase capacity and support production of the World Engine and improve processes for the 62TE transmission program; and accommodate future production of a new highly fuel-efficient eight-speed automatic transmission.

—Investing $600 million in its Belvidere Assembly Plant (Ill.).

—Confirming a planned investment of $850 million in its Sterling Heights Assembly Plant and surrounding stamping facilities.

—Planning an investment of $150 million in its GEMA (Dundee, Mich.) facility.

—Announcing in December 2009 that it will invest $179 million to launch production of the 1.4-liter, 16-valve Fully Integrated Robotized Engine (FIRE) at the GEMA plant, creating more than 150 new Chrysler jobs.

—Adding a second shift of production or nearly 1,100 jobs at its Jefferson North Assembly Plant (Mich.) in May 2010.

—Adding nearly 900 jobs on a second shift at its Sterling Heights Assembly Plant in February.

—Launching the all-new 2011 Jeep Grand Cherokee in May 2010.

—Beginning production of the all-new Fiat 500, Dodge Durango, Chrysler 200 and Dodge Avenger in December 2010.

—Starting production of the 2011 Chrysler 300, Dodge Charger and Dodge Challenger in January.