Kevyn Orr, a former bankruptcy lawyer, in his first report to the state of Michigan since Governor Rick Snyder appointed him, laid out last week a bracing picture of steps he may need to take to address the city’s troubles.

As he has gone about his work, though, with unions, bond insurance firms and others, Orr so far has communicated little about how they will be affected.

Orr’s spokesman, Bill Nowling, said the emergency manager expects to decide soon whether talks with the affected parties will get the job done. “It’s safe to say we will have a good idea of whether we can reach an out-of-court restructuring with our bondholders, pensioners, retirees and city employees within six weeks,” Nowling said.

“This is not going to be a prolonged process. We are in a financial crisis.”

The Detroit story has taken on outsized importance. Once a symbol of U.S. industrial might, the city now represents something different altogether: a case study of the struggles many U.S. cities and states are enduring as they grapple with crippling debt and untenable obligations to public workers.

And as Orr begins initial talks with Detroit’s employees and creditors, the process raises worrisome parallels with historic precedents close to home. Five years ago, the leaders of General Motors and Chrysler were undertaking similar preliminary steps with their creditors and workers, only to find that negotiations and concessions were not enough to avoid bankruptcy. Orr represented Chrysler during its restructuring.

Orr is moving forward on two major fronts: with creditors and workers. With bond holders and bond insurers, he is sending signals – but has not yet met with them. He is taking an aggressive approach to the unions representing the city’s public safety workers but has not yet sat down with dozens of others.

Ideally, restructuring experts said, all stakeholders should be invited to participate early in the process.

Detroit’s debt is one of Orr’s top targets because payments on the $2.9 billion of general fund debt – including $1.45 billion of pension obligation certificates and associated interest rate swap contracts – accounts for about 19 percent of the city’s general fund budget, Orr reported to the state.

Orr last week said Detroit will have enough cash to meet obligations through December, though portions of pension payments may again be deferred. In the 2014 fiscal year, which begins July 1, Detroit will need to pay $565 million to service its debt and another $112 million toward pension obligation certificates, according to a preliminary budget Orr released last week.

In dealing with the city’s $15 billion debt load, Orr has laid out the broad outlines of how he would like to proceed. But he has provided few details and initiated no direct contact with bond holders or the insurance companies that have written policies guaranteeing payment on most of the city’s debt.

BOND INSURERS ARE KEY

Bond insurance firms often are among the first to be approached, since they must reimburse bond holders in the event of a default or bankruptcy by the city.

James Spiotto, a municipal bankruptcy expert at law firm Chapman and Cutler, said bond insurers are key to any restructuring talks. In the event of a debt restructuring or bankruptcy filing, insurers could be required to make payments to bondholders, and would seek to recover funds from the city through the bankruptcy process.

But Kevin Brown, a spokesman for bond insurer MBIA Inc, which through a subsidiary has insured more than $2.5 billion in Detroit bonds, said the company has not heard from Detroit since Orr came in.

“I have no doubt we will be speaking with the city at some point in the future,” Brown said.

Even before Orr’s report, some insurers had indicated through communication to bondholders that they expect to be stepping in to make payments on Detroit bonds.

Adam Bergonzi, chief risk officer of National Public Finance Guarantee Corp, in a statement released in March stated that National is prepared to pay on any claims. “Should the city of Detroit fail to make a required debt service payment for any reason, including a bankruptcy filing, National’s insured bondholders are guaranteed their scheduled interest and principal payments on time and in full,” he wrote.

Certain classes of debt may get through without restructuring. For example, Assured Guaranty said payment streams for $1.8 billion of water and sewer revenue bonds it insured should be safe.

“These obligations are secured by a pledge of ‘special revenues,’ and therefore timely payment of debt service should be insulated from any financial difficulties of the city,” the firm stated.

Assured also insures exposure to $321 million of Detroit’s general obligation and general fund debt.

Orr in his report outlined four steps he will consider in deciding how to restructure Detroit’s debt: by pushing principal payments into future years, permanently reducing the amount of principal, lowering interest rates, and issuing new debt to provide cash recoveries to creditors.

Moody’s Investor Service warned of negative implications for Detroit debt soon after Orr issued his report. Orr’s language in the report with regard to debt was similar to that used by other municipalities that have filed for bankruptcy, Moody’s noted.

Orr has moved more directly in dealings with the city’s public-safety unions, though discussions with several other union groups have not yet begun.

Dan McNamara, president of Detroit Firefighters Association, said Orr did not mince words when he met with the union before Orr issued his report.

“He said, ‘Let’s be very clear. I’m in charge. I can impose a contract on you. I would like to sit and talk with you and get information. I’m not obligated to negotiate with you under the law,’” McNamara said.

Leaders for much of the city’s unionized workforce say Orr has not responded to their efforts to contact him.

Edward McNeil, the lead negotiator for a coalition of 33 of Detroit’s 48 union bargaining units, said union officials have mailed letters, hand-delivered letters, sent emails, made phone calls, and even recorded a video plea to Orr, asking for a meeting with the emergency manager.

“We have not gotten any kind of a response from him to this date,” McNeil said on Friday. “You have a person who comes in and says ‘I’m trying to right the city,’ and then we don’t get a response from him at all?”

They are waiting anxiously, union leaders said, because all Detroit workers – from police to firefighters to those represented by AFSCME and other unions – have taken several rounds of pay reductions already. They fear benefits such as pensions and healthcare are next on the chopping block.

(Additional reporting by Karen Pierog and Steve Neavling; Editing by David Greising and Eric Walsh)

Hussain Al Khawahir, 33, was detained after arriving in
Detroit on a flight from Amsterdam.

Pressure cookers packed with explosive powder and shrapnel
were set off at the finish line of the Boston Marathon on April
15, killing three people and injured 264.

“I’m afraid that some overzealous agents were looking for
anything,” said James Howarth, the attorney representing Al
Khawahir. “They see a pressure cooker and say, ‘This is a man
who has to be detained.’”

Howarth said many people from Saudi Arabia travel with
pressure cookers to cook lamb.

“Carrying a pressure cooker in America is not against the
law,” he said.

On May 11, Al Khawahir was questioned about two missing
pages from his passport and the pressure cooker he had in his
luggage, according to a complaint filed by federal prosecutors.

Al Khawahir initially said he brought the pressure cooker
from Saudi Arabia for his nephew, a student at the University of
Toledo in Ohio, because they are not sold in America. But he
then said that his nephew had bought a pressure cooker but it
was cheap and broke when he tried to use it, according to the
complaint.

He is charged with offering false information to customs
agents, part of the U.S. Department of Homeland Security.

Howarth spoke to reporters at a hearing on Tuesday to
determine whether Al Khawahir would be released on bond. His
lawyer said that he asked that the hearing not proceed because
it was clear Al Khawahir would be kept behind bars by U.S.
customs authorities whatever the outcome of the hearing.

A May 28 date was set to determine whether U.S. prosecutors
have enough evidence to bring the matter to a federal court.

The two pages missing from Al Khawahir’s passport were near
the back of the booklet and likely were not important, Howarth
said.

He said that if Al Khawahir had not been carrying a pressure
cooker, his competing statements about it would not be cause for
alarm.

“If he had made a mistake about an electric skillet, he
would be in Toledo today,” Howarth told reporters. Toledo is
about 60 miles (100 km) south of Detroit.

Al Khawahir faces up to five years in federal prison if he
is found guilty of giving false information to the U.S. agents.

(Reporting by Bernie Woodall; Editing by Greg McCune and Eric
Beech)

Hussain al-Khawahir, 33, arrived at the Detroit airport on Saturday and was questioned about why he had brought a pressure cooker with him. The man’s name was spelled al-Khawahir in the criminal complaint, while a spokeswoman at the U.S. attorney’s office had earlier said it was al-Kwawahir.

He initially said the pressure cooker was for his nephew, a university student in Toledo, Ohio.

“The Defendant then changed his story and admitted his nephew had purchased a pressure cooker in America before but it ‘was cheap’ and broke after the first use,” the complaint said.

Pressure cookers packed with explosive powder and shrapnel were set off at the finish line of the Boston Marathon on April 15, where they killed three people and injured 264. The bombs, left on the ground, caused gruesome injuries with more than 10 people losing limbs, either directly from the blasts or when doctors had to amputate the badly-mangled limbs.

Al-Khawahir was also charged with altering his passport because a page was torn out of the document, the complaint said.

A hearing was held on Monday in federal court in Detroit on the case but no action was taken in order to give prosecutors more time to investigate al-Khawahir, a spokeswoman for the prosecutor’s office said.

(Reporting by Bernie Woodall; Writing by Greg McCune; Editing by Gerald E. McCormick and Bob Burgdorfer)

Some of the 204 U.S. Fiat dealers are struggling to turn a profit selling several versions of the Fiat 500 subcompact and some dealers said they anxiously await more details from Chrysler and its Italian parent, Fiat SpA (FIA.MI: Quote, Profile, Research, Stock Buzz), on plans to expand products beyond what has been already announced.

Fiat returned to the U.S. market in March 2011 with 40 dealers after a 16-year absence selling a single product, the two-door Fiat 500, largely known outside North America as the Cinquecento.

The Italian carmaker, led by hard-charging Chief Executive Officer Sergio Marchionne, took over management of Chrysler after the No. 3 U.S. automaker’s 2009 bankruptcy, partly on the promise it would make the company less reliant on gas-guzzling pickup trucks and SUVs.

The Fiat brand’s return to the United States was not part of the bankruptcy deal. Fiat the corporate parent owns 61.5 percent of Chrysler and Marchionne hopes to buy the remaining shares and merge the two companies.

Gary Brown is the new chairman of the Chrysler Dealer Council. He owns a Fiat dealership on Long Island in New York, which sits 60 feet from his primary store, which sells the higher volume Chrysler, Jeep, Dodge and Ram Truck brands.

Brown says he has full faith that Marchionne and his executives will make Fiat dealers successful in the long run, but he is among those having a hard time selling only one style of car.

“I’m struggling to break even,” said Brown. “With the one car in a small (volume) segment, it’s a tough go right now.”

Brown said he is counting on the launch of the longer, four-door 500L this summer, which is expected to arrive at showrooms in June or July. A limited edition of a two-seat sports car called the 4C will be the first Alfa Romeo to hit the U.S. market late this year or in early 2014, but a higher-volume Alfa car is not expected until 2014.

“The real key is rolling out new product, additional offerings,” said Brown. “The four-door (500L) is really going to be a shot in the arm. It will put a franchise on more people’s radar as they are shopping for a small car.”

Brown and several other Fiat dealers said Chrysler officials did not inform them why a Fiat dealer meeting to be held at Chrysler’s headquarters in Auburn Hills, Michigan, on April 20 was postponed to May 20 only to have that one postponed as well.

One dealer who wished to remain anonymous assumes there is another delay in the schedule to bring Fiat’s sporty lineup from Alfa Romeo to the United States.

A Fiat spokesman declined to comment on the meetings, saying they are internal matters between the company and its dealers. He pointed to plans to introduce the bigger, four-door 500L this summer and for the first Alfa Romeo, a limited-edition two-seat sports car, the 4C, to arrive late this year or early 2014.

Tom Libby, lead analyst for Polk’s North American forecasting, said that initially, the Alfa Romeo Giulietta hatchback was to get to the U.S. market in April 2010. That has been pushed back several times to April 2014, he said.

And the larger sedan, the Giulia, is now expected to arrive in June 2015, Libby said.

Chrysler and Fiat officials declined to comment on the arrival dates for the Giulietta and the Giulia.

QUICKER TO 40,000

In 2012, Fiat sold 43,772 500s in the United States.

Through April this year, Fiat’s U.S. sales were up 6 percent to 13,511, in line with the growth of the domestic new vehicle market.

While sales are still relatively slight for Fiat, it made it to 40,000 annual sales in its second full year in the U.S. market.

By comparison, BMW AG’s (BMWG.DE: Quote, Profile, Research, Stock Buzz) Mini subcompact took four years to reach that level after it was introduced in 2002, according to TrueCar.com.

The lineup of Kia Motors Corp (000270.KS: Quote, Profile, Research, Stock Buzz) also passed 40,000 in sales in its fourth year in the United States, according to KBB.com.

Three analysts, Libby, Alec Gutierrez of KBB and Kristen Andersson of TrueCar each said they think Fiat will be successful in the U.S. market and dealers who are not turning a profit now will be once the product lineup broadens.

“I’m more optimistic than I was about year ago” about Fiat’s U.S. success, said Libby.

The brand will gain as more Americans turn to smaller cars that are more fuel-efficient. The subcompact segment is growing, he added.

(Additional reporting by Jennifer Clark in Milan and Andre Grenon)

Midsize sedans remain the single largest segment of the U.S.
auto industry. But their share of the industry has shrunk this
year, alongside a gain for vehicles like the Ford Escape,
executives and analysts said on Wednesday.

“While the segment is still growing year-over-year, it’s
nowhere near what it was growing last year as the industry was
launching a lot of new midsize cars,” Bill Fay, the U.S. head of
the Toyota brand, said during a call with reporters to discuss
U.S. auto sales in April.

U.S. auto sales are being propelled by pickup trucks and
sport-utility vehicles, as shown by U.S. auto sales in April by
major automakers.

Crossovers, which are SUVs built on a car-based platform,
are appealing because they offer more space for groceries and
golf clubs than the typical sedan, and they are easier for
people to enter and exit. And fuel mileage is improving.

Perhaps most importantly, the price gap has narrowed between
midsize sedans and compact crossovers like the Ford Motor Co
Escape, and the Toyota Motor Corp RAV4 and the
Honda Motor Co CR-V.

A small crossover costs just $1,300 more than the typical
family sedan, according to Kelley Blue Book. Excluding state
taxes, this amounts to less than $20 in monthly payments in some
cases.

“Fundamentally, both serve the family market,” said Mustafa
Mohatarem, General Motors Co’s chief economist.

“Midsize cars have gotten smaller and more expensive,
because of a variety of factors,” he said. “People are switching
to crossovers, because they satisfy the family needs very well.”

JAPANESE AUTOMAKERS HIT HARD

The closing gap in price is encouraging some buyers to
consider paying more for a crossover for the additional space
and flexibility, said Jeff Schuster, senior vice president of
forecasting with LMC Automotive.

“When there was a further separation between the two, there
weren’t so much a substitution for each other,” he said.

Midsize sedans accounted for 17 percent of the U.S. auto
market during the first quarter, compared with 17.7 percent
during the same period last year, according to LMC Automotive.

The shift has hit Japanese automakers, which dominate the
sedan segment. Camry sales fell 14 percent in April as overall
U.S. auto sales rose 8.5 percent. Sales of the Accord, which
Honda redesigned last year, fell 5 percent.

The falloff in sedan sales is also due to tough competition
in the segment, where several top-selling models have been
recently redesigned, including the Ford Fusion.

Midsize sedans also got smaller incentive during the month.
Incentives on mid-size sedans averaged $2,098 in April, nearly
10 percent lower than industry incentives overall, according to
data from Edmunds.com.

Toyota Motor Corp’s April sales fell short of estimates in
due in part to tighter competition for the Camry in this
bread-and-butter segment, said KBB analyst Alec Gutierrez. Camry
is Toyota’s top-selling vehicle in the U.S. market.

“Camry will likely be quite strong but not as strong as if
it were not facing Fusion, Altima and Accord,” Gutierrez said.

(Reuters) – Chrysler Group LLC’s auto sales rose 11 percent in April, led by strong demand for its Ram pickup trucks, the company said on Wednesday.

Chrysler sales of 156,698 vehicles slightly beat analysts’ expectations and were in line with projections for an 11 percent sales increase industrywide.

Such a rise would indicate a continuation of the moderate recovery for the auto industry since its plunge in 2009 to the lowest sales since World War Two, adjusted for population.

Other major automakers in the U.S. market were due to report April sales later Wednesday. Monthly auto sales are an early sign of consumer spending.

Chrysler’s sales were led by a 49 percent increase for its pickup trucks, including its best-seller, the Ram 1500, and a 27 percent rise for its second-biggest seller, the Jeep Grand Cherokee sport utility vehicle.

Earlier this week, Chrysler reported first-quarter earnings down 65 percent from a year earlier, in part because of production delays for the Grand Cherokee prior to April.

The U.S. auto industry’s annualized selling rate for April is expected to be 15.25 million light vehicles – cars and most pickup trunks – according to analysts polled by Thomson Reuters. That would be the sixth consecutive month of a selling rate above 15 million.

Chrysler projected that U.S. auto industry annualized sales will be about 15.4 million for April, including medium and heavy trucks. The larger trucks typically account for 300,000 sales a year and are not included in industry figures for light vehicles.

Strong sales of the Ram pickup trucks and the Grand Cherokee back up analysts’ forecasts that a stronger housing market and lower gasoline prices helped sales of pickup trucks and SUVs in April.

Consumer confidence in the United States rebounded in April, bettering analysts’ expectations, industry group The Conference Board said on Tuesday.

Chrysler is the No. 4 automaker in U.S. sales, following, in order, General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz), Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz).

GM sales are expected to rise by 9 percent to 12 percent, Ford sales by 15 percent to 17 percent, and Toyota in a range from unchanged to 8 percent, analysts projected.

For all of 2012, U.S. auto sales rose 13 percent to 14.5 million light vehicles.

(Editing by John Wallace)

“We knew we would be limping in the quarter. I just didn’t
think I was going to limp that much,” said Sergio Marchionne,
chief executive of both Chrysler and its parent Fiat, on a
conference call with analysts and reporters.

Marchionne in January warned that Chrysler’s first-quarter
earnings would be down from a year earlier because of the
expense of product launches and the fact that the Jeep Liberty
SUV was no longer being produced.

The Liberty’s successor, the Jeep Cherokee, was not sold in
the first quarter and will not be sold until the third quarter.

But Marchionne said that there were delays in the production
launches of the Jeep Grand Cherokee and RAM heavy duty trucks,
which he said are among the highest profit-makers.

Fiat, which took control of the third-largest U.S. automaker
when Chrysler emerged from a government-sponsored bankruptcy
four years ago, stood by its financial forecasts for 2013
despite a worsening European car market and lower revenue in the
U.S. for the first quarter.

Fiat sees full-year revenue in the 88 billion euro to 92
billion euro range, trading profit between 4 billion and 4.5
billion euros, and net industrial debt of about 7 billion euros.

Analysts had expected a weak quarter for the combined group,
and the results came in below consensus.

Trading profit was 618 million euros, below the 720 million
euros forecast by 21 analysts published on Fiat’s website.
Pre-tax profit came in at 160 million euros, compared to a
forecast of 300 million euros by analysts.

At Chrysler, first-quarter net income fell 65 percent to
$166 million from $473 million a year earlier. Net revenue
slipped 6 percent to $15.4 billion.

Net debt was 7.10 billion euros, in line with forecasts, and
higher than the 6.5 billion euros at the end of 2012.

Citi Research analyst Harald Hendrikse said the quarter’s
results again highlight Fiat’s difficult debt issue.

“With debt at current levels, the company cannot compete in
this industry longer term against giants like Volkswagen AG
spending 16 billion euros on capital expenditures
and research and development,” said Citi in a note.

NARROWING EUROPEAN LOSSES

Fiat’s European losses before interest and tax narrowed to
111 million euros, from a year-ago loss of 170 million euros,
despite a 10 percent drop in industry sales in the region.
Marchionne said he expects Fiat to narrow its operating losses
in Europe further in 2013.

Fiat outperformed a dismal European car market with the
launch of the new Fiat 500L small car, the company said.

Fiat, like competitors Ford, General Motors and
Peugeot, is losing money in Europe as buyers delay
purchases of new cars until the economy improves. Unlike rivals,
however, Fiat has decided to invest in retooling its idled
factories to ramp up volumes of higher-margin cars for export
rather than close plants.

The company aims to break even in Europe by 2015 or 2016.

LOOKING AHEAD

Chrysler said it will increase vehicle shipments in the
second quarter by at least 13 percent from the first quarter, to
650,000 vehicles up from 574,000 in the first quarter.

Marchionne said the Jeep Grand Cherokee, now that its launch
delays are over, will show strong April sales, and that the
biggest boost in Grand Cherokee sales will show in the third
quarter.

Marchionne said in the coming quarters Chrysler will better
match up production and retail sales performance.

“Close your eyes, plug your nose and move it on from here,”
said Marchionne to analysts on a conference call.

COMING TO AMERICA?

Looking further out into the future, Marchionne said he
hopes to merge Fiat and Chrysler into one group and he hinted
strongly that the combined company will be headquartered outside
of its native Italy.

Many observers expect the merged company to be headquartered
where Chrysler is now, in Auburn Hills near Detroit, and to be
listed on the New York Stock Exchange and in Italy.

Marchionne said the merged company would be headquartered in
the geographical region that has “the adequacy of capital
markets (necessary to) support our operations going forward.”

Marchionne said that “Europe is becoming a less and less
relevant fact in the scheme of things” as its share of the
global auto market diminishes.

Italy has been a particularly weak player in a weakening
region for auto sales.

“Italy in 2012 represented 10 percent of the overall sales
of this (Fiat) Group,” aid Marchionne. “And I think it’s a stark
reality for someone who has been a Fiat aficionado all his life.
This is a different house. It looks at the world in a completely
different way.”

“We knew we would be limping in the quarter. I just didn’t
think I was going to limp that much,” said Sergio Marchionne,
chief executive of both Chrysler and its parent Fiat, on a
conference call with analysts and reporters.

Marchionne in January warned that Chrysler’s first-quarter
earnings would be down from a year earlier because of the
expense of product launches and the fact that the Jeep Liberty
SUV was no longer being produced.

The Liberty’s successor, the Jeep Cherokee, was not sold in
the first quarter and will not be sold until the third quarter.

But Marchionne said that there were delays in the production
launches of the Jeep Grand Cherokee and RAM heavy duty trucks,
which he said are among the highest profit-makers for the
automaker.

Fiat, which took control of the third-largest U.S. automaker
when Chrysler emerged from a government-sponsored bankruptcy
four years ago, stood by its financial forecasts for 2013
despite a worsening European car market and lower revenue in the
U.S. for the first quarter.

Fiat said it sees full-year revenue in the 88 billion euro
to 92 billion euro range, trading profit between 4 billion and
4.5 billion euros, and net industrial debt of about 7 billion
euros.

Analysts had expected a weak quarter for the combined group,
which reports consolidated earnings, and the results came in
below consensus.

Trading profit was 618 million euros, below the 720 million
euros forecast by 21 analysts published on Fiat’s website.
Pre-tax profit came in at 160 million euros, compared to a
forecast of 300 million euros by analysts.

Net debt was 7.10 billion euros, in line with forecasts, and
higher than the 6.5 billion euros at the end of 2012.

Citi Research analyst Harald Hendrikse said the quarter’s
results again highlight Fiat’s difficult debt issue.

“With debt at current levels, the company cannot compete in
this industry longer term against giants like Volkswagen AG
spending 16 billion euros on capital expenditures
and research and development,” said a Citi Research report
issued on Monday.

European losses narrowed, however, despite a 10 percent
market drop.

Fiat’s loss in Europe before interest and tax narrowed to
111 million euros from a loss of 170 million euros the quarter
before. Fiat’s mass market car sales in Europe fell by 8
percent, bolstered by the launch of the new Fiat 500L small car,
the company said.

At Chrysler, first-quarter net income fell 65 percent to
$166 million from $473 million a year earlier. Net revenue
slipped 6 percent to $15.4 billion.

On the conference call, Marchionne introduced Richard
Palmer, Chrysler’s chief financial officer, by saying Palmer
would give the “not so glorious details of a not so glorious
quarter.”

LOOKING AHEAD

Chrysler said it will increase vehicle shipments in the
second quarter by at least 13 percent from the first quarter, to
650,000 vehicles up from 574,000 in the first quarter.

Of the vehicles the company shipped in the first quarter, 73
percent went to the U.S. market, up from 69 percent a year
earlier.

Marchionne said the Jeep Grand Cherokee, now that its launch
delays are over, will show strong April sales, and that the
biggest boost in Grand Cherokee sales will show in the third
quarter.

Marchionne said in the coming quarters Chrysler will better
match up production and retail sales performance.

“Close your eyes, plug your nose and move it on from here,”
said Marchionne.

“We knew we would be limping in the quarter. I just didn’t
think I was going to limp that much,” said Sergio Marchionne,
chief executive of both Chrysler and its parent Fiat, on a
conference call with analysts and reporters.

Marchionne in January warned that Chrysler’s first-quarter
earnings would be down from a year earlier because of the
expense of product launches and the fact that the Jeep Liberty
SUV was no longer being produced.

The Liberty’s successor, the Jeep Cherokee, was not sold in
the first quarter and will not be sold until the third quarter.

But Marchionne said that there were delays in the production
launches of the Jeep Grand Cherokee and RAM heavy duty trucks,
which he said are among the highest profit-makers for the
automaker.

Fiat, which took control of the third-largest U.S. automaker
when Chrysler emerged from a government-sponsored bankruptcy
four years ago, stood by its financial forecasts for 2013
despite a worsening European car market and lower revenue in the
U.S. for the first quarter.

Fiat said it sees full-year revenue in the 88 billion euro
to 92 billion euro range, trading profit between 4 billion and
4.5 billion euros, and net industrial debt of about 7 billion
euros.

Analysts had expected a weak quarter for the combined group,
which reports consolidated earnings, and the results came in
below consensus.

Trading profit was 618 million euros, below the 720 million
euros forecast by 21 analysts published on Fiat’s website.
Pre-tax profit came in at 160 million euros, compared to a
forecast of 300 million euros by analysts.

Net debt was 7.10 billion euros, in line with forecasts, and
higher than the 6.5 billion euros at the end of 2012.

Citi Research analyst Harald Hendrikse said the quarter’s
results again highlight Fiat’s difficult debt issue.

“With debt at current levels, the company cannot compete in
this industry longer term against giants like Volkswagen AG
spending 16 billion euros on capital expenditures
and research and development,” said a Citi Research report
issued on Monday.

European losses narrowed, however, despite a 10 percent
market drop.

Fiat’s loss in Europe before interest and tax narrowed to
111 million euros from a loss of 170 million euros the quarter
before. Fiat’s mass market car sales in Europe fell by 8
percent, bolstered by the launch of the new Fiat 500L small car,
the company said.

At Chrysler, first-quarter net income fell 65 percent to
$166 million from $473 million a year earlier. Net revenue
slipped 6 percent to $15.4 billion.

On the conference call, Marchionne introduced Richard
Palmer, Chrysler’s chief financial officer, by saying Palmer
would give the “not so glorious details of a not so glorious
quarter.”

LOOKING AHEAD

Chrysler said it will increase vehicle shipments in the
second quarter by at least 13 percent from the first quarter, to
650,000 vehicles up from 574,000 in the first quarter.

Of the vehicles the company shipped in the first quarter, 73
percent went to the U.S. market, up from 69 percent a year
earlier.

Marchionne said the Jeep Grand Cherokee, now that its launch
delays are over, will show strong April sales, and that the
biggest boost in Grand Cherokee sales will show in the third
quarter.

Marchionne said in the coming quarters Chrysler will better
match up production and retail sales performance.

“Close your eyes, plug your nose and move it on from here,”
said Marchionne.

(Reuters) – Chrysler Group LLC’s quarterly profit fell 65 percent as it absorbed the costs of new-vehicle launches, the company said on Monday.

The No. 3 U.S. automaker also reaffirmed its financial forecasts for 2013, including net income of about $2.2 billion.

“We remain on track to achieve our business targets, even as the first-quarter results were affected by an aggressive product launch schedule,” said Sergio Marchionne, chief executive officer of Chrysler as well as of its parent, Fiat SpA (FIA.MI: Quote, Profile, Research, Stock Buzz).

Fiat is to release its first-quarter earnings later Monday morning.

Net income in the first quarter fell to $166 million from $473 million a year before.

Net revenue fell 6 percent to $15.4 billion in the quarter.

Chrysler also said it still expects 2013 net revenue of $72 billion to $75 billion, boosted by a strong second half. It also said it sees free cash flow of more than or equal to $1 billion.

Marchionne in January warned that Chrysler’s first-quarter earnings would be weaker than the previous year because of the expense of product launches and the fact that the Jeep Liberty SUV was no longer being produced.

The Liberty’s successor, the Jeep Cherokee, was not sold in the first quarter.

Marchionne said earlier this month that there was a 50 percent chance that the Fiat buyout of Chrysler would be completed by June 2014.

If Fiat, which now owns 58.5 percent of Chrysler, buys and then merges with Chrysler, it would create the world’s seventh-largest automaker.

As it has in recent quarters, Chrysler’s profit was expected to keep its parent Fiat from losing money in the first quarter as the European auto market outlook remains bleak.

(Reporting by Bernie Woodall; Editing by Gerald E. McCormick and Maureen Bavdek)