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Chrysler Nets $71 Million in Quarter; Cost Cuts Cited

From Reuters

Chrysler Corp., the No. 3 U.S. auto maker, said Tuesday that cost cuts undertaken last year helped it make a $71-million profit in the first quarter of this year even though car sales plummetted.

The results came as a pleasant surprise to Wall Street, where some industry analysts had expected the auto maker would barely break even or even post a small loss.

Chrysler stock closed up 75 cents at $15.25 on the New York Stock Exchange.

Chrysler posted a profit even as sales fell to $7.56 billion, compared to $9.66 billion in the 1989 first quarter, when the auto maker had net earnings of $351 million.

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“It seems the cost-reduction program really is taking effect,” said John Casesa, analyst with Wertheim Schroder & Co., who had expected Chrysler to report earnings of about 10 cents a share.

The company said earnings were hurt by high incentive costs and lower production volume.

“We posted a profit in our automotive operations, despite lower volume and incentive costs nearly double what they were a year ago,” Chairman and Chief Executive Lee A. Iacocca said in a statement. “Our $1.5-billion cost-cutting program is certain to become a major competitive advantage to Chrysler.”

Industry analysts said Chrysler so far is saving $200 million per quarter through its cuts. The company last year established a target of cutting $1 billion in annual costs this year and $1.5 billion annually when the program is fully implemented.

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Analysts said that without the cost-cutting program, the quarter would likely have shown Chrysler deeply in the red.

“The bottom line is that factory sales are down and incentives are up,” said Oppenheimer & Co. analyst Charles Brady. “There was no reason for good news.”

Another factor in Chrysler’s surprising showing was the improvement in its per-car profitability.

Analysts credited the increased profit margins to the company’s decision to discontinue its Omni/Horizon line of subcompact cars in February of 1989 and higher sales of its lucrative minivans.

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“Chrysler is cutting down on the lower-priced vehicles, which means the average value of the cars is going up,” said David Healy, analyst with Barclay’s BZW.

The company has also reduced its “fleet” sales, or discounted volume sales of vehicles to a single corporate customer.

Chrysler said that in the first quarter, it sold 211,283 cars and 239,216 trucks and minivans in the United States, giving the company a 9.2% share of the domestic car market and a 19.5% share of the domestic truck market.

The company said first-quarter sales of its Dodge Caravan, Plymouth Voyager and Chrysler Town and Country model minivans were up 15% over the first quarter of 1989. It said the popular minivans continue to command more than 50% of their market segments.

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Chrysler Financial Corp., the auto maker’s finance arm, earned $89 million in the first quarter, up 37% from the $55 million earned in the first quarter of 1989.

Despite the encouraging news from Chrysler, analysts do not have any plans to change their first-quarter estimates for Ford Motor Co. and General Motors Corp., which will report earnings later this week.

They said the Chrysler improvement was due mostly to internal measures that helped offset negative industry factors such as lower production and rebate costs.

The profit figure from the first quarter of 1989 included a $13-million gain from discontinued operations.

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