Chrysler to Post $530-Million Loss
Stung by the high cost of propping up retail sales of an aging product line, DaimlerChrysler’s U.S. arm will post a third-quarter operating loss of $530 million, the German American car maker said Wednesday.
A promise to return to profitability in the final quarter on the strength of a string of new and redesigned cars and trucks was rendered bittersweet by the separate announcement that Tom Gale, the designer whose creativity and leadership pushed the former Chrysler Corp. into the forefront of U.S. automotive design in the last decade, will retire at year’s end.
Gale, 57, is executive vice president in charge of Chrysler product development and design. The designer, who oversaw development of cars such as the Dodge Viper, Plymouth Prowler and Chrysler Cruiser, said he is leaving after 33 years with the company to pursue other interests and to spend more time with his family.
He said he plans to open a design consulting business and also has agreed to serve for two years as a design advisor with the Chrysler group, the U.S. unit of the world’s fifth-largest auto maker.
Industry watchers said Wednesday that Gale, a towering figure in automotive design, is leaving a solid team in place and that his departure should not be damaging to the Chrysler group’s prospects.
“He managed to produce some very unique cars that other executives might have left as show cars and never put into production,” said David Cole, director of industrial design at the Academy of Arts College in San Francisco and a former top designer at Volkswagen.
Of more immediate concern than Chrysler’s design heritage, analysts said, is the U.S. unit’s heavy reliance on costly retail incentives to move product while it waits for a string of new designs to hit the market and re-engage buyers. So far this year, Chrysler has spent an average of $2,700 per vehicle on incentives, about $200 more than competitors General Motors Corp. and Ford Motor Co., said Art Spinella, vice president of CNW Marketing Research of Bandon, Ore.
The projected third-quarter loss would be Chrysler’s first since the company was acquired by Daimler-Benz of Germany in November 1998. Nevertheless, DaimlerChrysler projects that the U.S. unit’s annual operating profit will top 2 billion euros, or about $1.7 billion at the current exchange rate.
Worldwide, DaimlerChrysler said, it expects 2000 net profit and earnings per share to match 1999 levels. But operating profit, projected at $6.2 billion, will probably drop 30% from last year.
DaimlerChrysler shares rose 94 cents after the announcement to close at $45.94 on the New York Stock Exchange. The stock, which hit a 52-week low of $44.13 last week, has declined 41% this year.
Analysts said Wednesday’s 2% gain was prompted in part by the company’s promise to implement cost-cutting measures in the U.S., including less reliance on incentives to promote sales.
Still, Chrysler faces stiff challenges in the hyper-competitive U.S. market.
“Chrysler pioneered a number of products, like minivans and sport-utility vehicles, but the competition reacted,” said George Magliano, auto industry consultant with WEFA Group in New York. “And now, where they’ve made lots of money in the past, they have a lot of competition with newer products and are losing out.”
The company has introduced a revamped minivan family and is about to launch redesigns of the Jeep Cherokee and the Dodge Ram pickup, “so it has a lot riding on new product,” Magliano said.
But the jury’s still out on one of those key products, the redesigned minivans.
Chrysler, which invented the modern minivan and has been the industry leader for years, has seen its market share in that category shrink substantially this year as fresh new products from competitors such as Ford, Honda Motor Co. and Toyota Motor Corp. have caught shoppers’ attention. Chrysler has redesigned and re-engineered its minivans for 2001, but it disappointed many critics by opting to leave the exteriors largely unchanged.
With Gale retiring, Chrysler’s top U.S. stylist will be Trevor Creed, the last remaining member of the ‘80s design team that helped revive Chrysler’s fortunes after it nearly went bankrupt.
