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UPDATE 2-Fiat Chrysler reports robust quarter, narrows gap with U.S. rivals
July 30, 2015 / 2:00 PM / in 2 years

UPDATE 2-Fiat Chrysler reports robust quarter, narrows gap with U.S. rivals

* Q2 operating profit up 58 pct to 1.5 bln euros

* North America Q2 margins rise to 7.7 pct from 4.9 pct

* FCA boss says company still ‘far away’ from U.S. rivals (Adds comments from conference call, analyst)

By Agnieszka Flak and Bernie Woodall

MILAN/DETROIT, July 30 (Reuters) - Fiat Chrysler Automobiles (FCA) on Thursday reported robust second-quarter earnings and better margins in North America as charging higher prices for its vehicles helped it gain ground on more profitable U.S. rivals.

Milan-listed shares of the world’s seventh-largest carmaker closed up 5.8 percent, and were up 5.3 percent in New York at $15.30.

FCA said it was able to get more money for the vehicles it sells in the U.S. market as it de-emphasized large fleet sales in favor of retail sales to individual consumers. U.S. Jeep sales were at a record high for the quarter.

Chief Executive Sergio Marchionne said in a conference call with industry analysts that he has not changed his mind on the need for industry consolidation to boost scale. He did not make any updates on his attempts to find a merger partner for FCA.

The likes of General Motors have openly said they preferred going it alone.

Marchionne has vowed to close the North American margin gap with GM and Ford by 2018.

FCA’s margins in the region rose to 7.7 percent in the quarter, from 4.9 percent a year earlier, boosted by better pricing, purchasing efficiencies and currency effects, but Marchionne said the company was “still far away” from Ford and GM, which reported margins of 11.1 percent and 10.5 percent, respectively.

“It remains to be seen whether this is one-off in nature or sustainable,” Evercore ISI analyst George Galliers said in a note, adding that other concerns remained such as weak cash generation and difficulty rejuvenating brands such as luxury unit Maserati.

Closing the gap with its Detroit rivals may become more difficult after delays in introducing new North American products, sources told Reuters.

Marchionne said on Thursday the company had not postponed anything it thought was “of substance.”

The U.S. car market is nearing its peak, with vehicle sales likely to plateau or drop after hitting an expected 17 million this year. Marchionne said FCA would “survive” if U.S. sales dropped to around 14 million to 15 million.

If FCA, which has net debt of 8 billion euros, fails to find a willing merger partner, it may need to sell assets to fund its ambitious growth plan.

FCA has been approached with an offer for its components maker unit Magneti Marelli, sources have told Reuters.

Marchionne said there were “no immediate plans” to sell the unit but did not rule out this could change.

One issue overshadowing the quarter was FCA’s high number of costly U.S. safety recalls. Marchionne said the carmaker had made adequate provisions to deal with expected recall costs.

FCA, which is due to spin off luxury unit Ferrari later this year, reported a 58 percent rise in second-quarter adjusted earnings before interest and tax (EBIT) to 1.525 billion euros ($1.67 billion), above a consensus forecast of 1.1 billion euros.

The company lifted its 2015 revenue guidance while adjusted EBIT is now seen equal to or in excess of 4.5 billion euros, from a previous range of 4.1 billion-4.5 billion.

$1 = 0.9139 euros Additional reporting by Stefano Rebaudo in Milan and Paul Lienert in Detroit; Editing by Bernadette Baum and Cynthia Osterman

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