Chrysler’s Profit Falls 25%; U.S. Taxes Cited

Chrysler reported Thursday that its net earnings fell to $596.4 million in the second quarter, down 25.7% from last year’s record $802.9 million, primarily because the firm is once again paying corporate income taxes.

But the auto maker said its pretax profits, buoyed by strong car and truck sales, rose 6% to a record $852 million, compared to $803.6 million last year, when it didn’t pay income taxes.

Despite the strong financial performance, however, Chrysler Chairman Lee A. Iacocca warned that the company will stake out a tough negotiating stance in contract talks next month with the United Auto Workers. Chrysler and the UAW are scheduled to open negotiations Aug. 12 to hammer out a new agreement to replace the existing contract covering about 65,000 U.S. workers, which expires Oct. 15.

For the first six months of 1985, Chrysler said its net earnings fell 26.8% to $1.1 billion, compared to $1.51 billion during the same period last year. But pretax earnings hit a record $1.58 billion in the latest six months, up 4.5% from last year’s $1.51 billion.

Analysts generally agreed that the company’s decline in net income was a result of its new status as a corporate taxpayer. Between 1979 and the fourth quarter of 1984, Chrysler didn’t pay any federal income taxes; its earnings were shielded from taxes by the company’s use of tax credits built up during the recession. But, because of its rapid recovery, Chrysler has now exhausted those benefits.

Iacocca attributed the pretax gain to Chrysler’s 17.3% increase in domestic car sales so far this year and to the firm’s ability to raise its share of the car and truck markets at the expense of General Motors.

In the second quarter, Chrysler held 10.8% of the U.S. car market, up from 10.1% at the same time last year, while its truck sales accounted for 13.7% of the market, up from 12.9% in the second quarter of 1984. At the same time, GM’s dominant market share has been gradually declining.

Meanwhile, Iacocca, preparing for the start of contract talks with the UAW, said that Chrysler may demand a revised labor agreement patterned after the revolutionary new pact that the union has agreed to with Saturn Corp., a GM subsidiary created earlier this year to build an all-new subcompact car for the 1990s that is meant to be cost-competitive with the Japanese.

An outline of the union’s tentative agreement with Saturn, released to the press last week, indicated that the UAW was offering to make revolutionary concessions to management in such areas as work rules, job classifications and pay scales in return for enhanced job security and a greater role for union workers in the decision-making process. A final Saturn labor contract is expected to be announced within the next few days.

Iacocca said the tentative Saturn agreement should establish a new pattern for labor negotiations in the auto industry, and he argued that Chrysler shouldn’t be forced to increase its wage and benefit levels to match those agreed upon in the 1984 national contracts between the UAW and GM and Ford.

Thanks to the concessions that Chrysler won during its severe financial crisis, the company’s labor rates are still lower than those of its bigger rivals; the average assembler at Chrysler earns $12.79 per hour (including base wages and cost-of-living allowance), while assemblers at GM and Ford earn an average of $13.18 per hour.

“We should do as well or better than Saturn” in contract talks with the union, Iacocca said during a press conference here. He added that the union’s innovative deals with the GM-Toyota joint venture and Mazda’s assembly plant outside Detroit should also be considered as new standards in the industry.

“Why should you allow the companies with Japanese investment in them to have better contracts than the companies that are 100% American?” Iacocca asked.