Chrysler is generating the cash needed to rebuild its product portfolio as sales continue to gain momentum, Chief Executive Sergio Marchionne told employees on Friday.

Marchionne, in an email to employees on one year anniversary of Chrysler's emergence from bankruptcy, said the company's alliance with Fiat SpA is taking root by cutting costs and expanding revenue from outside of North America.

Chrysler emerged from a U.S. government-sponsored bankruptcy on June 10, 2009 under management control of Fiat, which has a 20 percent stake in the U.S. automaker. In return, Fiat is providing Chrysler with fuel-efficient engines and technology.

We are generating the cash needed to build our brands and invest in products, Marchionne said in the memo, a copy of which Reuters obtained.

Our sales are building momentum, with substantial year-over-year increases in the past two months, he said.

Whether Chrysler has the cash to revamp its aging lineup dominated by gas guzzling trucks and SUVs has been the question surrounding Marchionne's ambitious five-year turnaround plan for Chrysler.

Chrysler is counting on a new generation of smaller, Fiat-based autos and fuel-efficient vehicles to revitalize its lineup.

Its U.S. sales for the first five months of this year were up 8 percent over the same period last year. Its May sales were up 33 percent from the same month last year.

Chrysler surprised analysts with a $143 million, first-quarter, operating profit driven by cost-cutting and higher sales volume.

There is still a very long road ahead in our drive to rebuild our business and to deliver on our promises to repay the American and Canadian taxpayers who gave us a second chance, Marchionne said.

(Reporting by Soyoung Kim)

Chrysler