Chrysler Profit Falls 24% for 2nd Quarter : Buyer Incentives May Be Culprit, Analysts Say
Chrysler Corp. reported Thursday that its second-quarter earnings slid 24% compared to a year ago, and analysts said buyer incentive programs may have compressed results more than the company expected.
The nation’s No. 3 auto maker said it earned $320.4 million in the three months ended June 30, compared to $424.1 million in the second quarter of 1987.
The depressed profits, due to rebate and incentives programs, were a short-term sacrifice to boost market share and improve the company’s long-term competitiveness, Chrysler Chairman Lee A. Iacocca said.
That game plan led to brisk sales, which should strengthen Chrysler’s standing in the marketplace, Iacocca said.
“You get a conquest (first time) buyer into your stable and, hopefully, you keep him,” explained Joseph Phillippi, auto analyst with Shearson Lehman Hutton Inc. in New York.
Profit Margins ‘Poor’
The results came on sales of nearly $8.5 billion in the second quarter, up almost 33% from $6.4 billion in the same period a year ago.
“The profit margins were very poor considering the level of business they did in the quarter,” said analyst Dave Healy of Drexel Burnham Lambert Inc. of New York. “They have been pushing heavily with incentives and the market share’s gone up, but the results show the effect of it.”
Phillippi added, “They were a little bit under where they were going to come in (under the forecast). The principal reason, essentially as I read the number, was average yields per unit were down a little bit, and that reflects fleet sales, the cost of rebates and incentives . . . It was essentially the incentives.”
Chrysler’s 21% share of the U.S. truck market was up nearly two percentage points from the second quarter of 1987, the company said.
Through June, Chrysler’s combined U.S. car and truck retail sales were up 16% from the same period of 1987.
“We’re going after a bigger base of loyal customers, because that’s what it takes to succeed over the long haul,” Iacocca said.
For the first half of the year, Chrysler’s net earnings totaled $504.1 million, down from $693.5 million in 1987.
‘Margin Squeeze’
The first half results include a $93.1 million charge for previously announced plant closings in the Acustar Inc. subsidiary.
During the second quarter, the nation’s No. 3 auto maker continued to hold the line on 1988 model prices, with 42% of the passenger cars it sells tagged below 1987 prices.
