Chrysler Reports Surprisingly Strong Quarterly Earnings of $1 Billion

Chrysler Corp. reported better-than-expected fourth-quarter earnings of $1 billion on Friday, but its top executive warned that auto industry sales and the overall economy could slump this year unless interest rates are cut soon.

Chairman Robert Eaton said the Federal Reserve Board needs to lower interest rates at least half a percentage point in the next six weeks or the economy could slow further, possibly slipping into recession.

“We think it [the economy] is now in more jeopardy than it was in the last few months,” he said in a teleconference with reporters from New York.

The concern over the economy’s direction came as the nation’s No. 3 auto maker reported its second-best quarter ever. Chrysler earned $1.04 billion, or $2.67 a share, compared with year-earlier profit of $1.17 billion, or $3.20 a share. Sales climbed 6% to $15.1 billion.

Although net earnings were down about 11%, they were much better than Wall Street analysts had anticipated. They also reflected the strong public enthusiasm for Chrysler’s flagship minivan, which was overhauled for 1996.

“It was a bang-up quarter,” said David Healy, analyst for Burnham Investment Research.

Chrysler shares jumped $1.875 to $54.125 on the New York Stock Exchange.

For the year, Chrysler earned $2.03 billion, or $5.11 a share, down sharply from the record profit of $3.7 billion, or $9.10 a share, in 1994. Revenue for 1995 totaled $53.2 billion, up 2%.

The decline in profit was attributed to costs for the launch of the new minivan, retooling of its Newark, Del., assembly plant and the collapse of the Mexican market because of the peso devaluation--all costs that will not be recurring.

“The big hitters [on profit] are one-time hitters,” Eaton said.

The results are likely to bolster the company’s case against investor Kirk Kerkorian, who mounted an unsuccessful takeover effort last year. Kerkorian, who owns about 14% of Chrysler’s shares, wants seats on the company’s board and has advocated steps to enhance shareholder value.

Eaton said the company’s performance shows that its financial and strategic plans are working. He said the company returned $1.8 billion to shareholders through dividends and stock buybacks.

Chrysler is the latest company to voice concern about the economy in recent days, and semol are beginning to brace for recession. Caterpillar Inc. on Thursday predicted slowing economic growth in 1996 and possibly a mild recession even if the Fed lowers rates early this year.

Auto analysts have begun to lower earnings projections for the Big Three as sluggish sales have prompted General Motors Crop. and Ford Motor Co. to cut back production as dealer inventories have grown. The manufacturers are also increasing rebates to entice buyers.