Auto Maker’s Profit Falls 79% on Losses at Chrysler
Auto maker DaimlerChrysler said Thursday that third-quarter operating profit fell a greater-than-expected 79% because of losses at its Chrysler unit in the U.S., which has been beset by slowing sales and rising costs.
Income from operations fell to $477 million, based on current exchange rates, from $2.27 billion in the third quarter last year as losses at Chrysler offset profit at the Mercedes-Benz luxury car unit.
Sales rose 2.6% to $32.8 billion from $32 billion in the same quarter last year.
The Chrysler unit, which generated half the company’s profit last year, or $1 billion, lost $512 million, as discounts rose to as much as $3,000 per vehicle. The operating loss was Chrysler’s first since 1991.
After one-time charges, DaimlerChrysler’s net income fell to $289 million for the quarter, down 78% from a year ago.
Despite the steep discounts at Chrysler, sales of the Ram pickup, Durango sport-utility vehicle and Neon compact car fell 14%, and costs rose with the introduction of new minivans that DaimlerChrysler hopes will improve sales.
DaimlerChrysler prepared markets for the disappointment, announcing last month that its U.S. unit--maker of Chrysler, Dodge and Jeep vehicles--would post half a billion dollars in losses because it boosted discounts on older cars and minivans to make room on showroom floors for new models.
Despite the warning, investors again punished the company’s stock, which hit a 52-week low of $42.69 Thursday before closing at $43.73, a gain of 30 cents on the day, on the New York Stock Exchange.
DaimlerChrysler shares have fallen 26% in Frankfurt this year and 44% in New York, the worst performance among the world’s major auto makers. The company’s U.S. shares have lost about half their value since Daimler-Benz bought Chrysler Corp. for $36 billion in November 1998.
“The main problems for DaimlerChrysler were difficulties in the U.S., and the fear is they haven’t solved the problem,” said Albrecht Denninghoff, an analyst at HypoVereinsbank.
DaimlerChrysler’s higher U.S. incentives reduced the resale value of the cars and trucks the company leases, forcing it to take a charge of about $400 million in the quarter.
The company said “tough market conditions” in the U.S. will intensify. Analysts took this as a warning that Chrysler may post another loss.
“It is conceivable that the company is bracing us for another loss quarter,” said James Kelleher of Argus Research, who has a “value buy” rating on the company. “But assuming that the new model minivans sell in line with the company’s own hopes, then the loss position could be a minor loss to a very minor profit.”
In response, DaimlerChrysler has been pushing forward cost cuts. The company also is betting that new minivans and Sebring cars will sell at higher prices than the vehicles they replace.
“We have to assume the incentive trend will continue--there is no doubt about that,” Chief Executive Juergen Schrempp said in a conference call with analysts. “But a number of models are in the beginning of their life cycle, and I think we will see a positive effect.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Stuck in Reverse
The once-heralded November 1998 merger of Daimler-Benz and Chrysler has disappointed investors. The German-American auto maker has seen its shares tumble 44% this year:
DaimlerChrysler shares, monthly closes and latest on NYSE
Thursday: $43.73: up 30 cents
*
Source: Bloomberg News
