Chrysler on Profitable Track

AUBURN HILLS, Mich. — In a sign that its far-reaching turnaround plan is starting to bear fruit, Chrysler Group on Thursday reported an operating profit of $111 million in the first quarter and said it was on track at least to break even this year.

The profit, on revenue up 11% to $13.9 billion, marked a dramatic about-face from the $1.2-billion operating loss that Chrysler Group--made up of the Chrysler, Dodge and Jeep brands--suffered in the first quarter a year ago and ended six consecutive quarters of red ink.

Chrysler Group does not report net earnings, but its parent, DaimlerChrysler of Germany, took a $300-million charge for restructuring at its U.S. unit that is the former Chrysler Corp.

“We were able to further overachieve on the cost side,” Chief Executive Dieter Zetsche told journalists at Chrysler Group’s headquarters in this Detroit suburb. “The company is better than we thought a half-year ago.”

Stuttgart-based DaimlerChrysler had an operating profit of $900 million for the quarter, up from a loss of $500 million a year earlier. On a net basis, DaimlerChrysler earned $2.3 billion, or $2.31 a share, boosted by the sale of an information technology and telecommunications subsidiary, virtually a mirror image of DaimlerChrysler’s net loss of $2.1 billion, or $2.05 a share, in the first quarter of last year.

Zetsche said Chrysler’s turnaround was on track despite uncertainties in the domestic economy, the war on terrorism and violence in the Middle East.

“Assuming the economy continues to develop positively, Chrysler may do better than break even and show a profit for the full year,” Zetsche said.

He cited strong sales in the quarter of the completely redesigned Dodge Ram pickup truck--launched at the worst possible time, one week after the September attacks, when vehicle sales were at a virtual standstill--and the Jeep Liberty sport utility vehicle.

“The Chrysler story was definitely good news,” said Ephraim Levy, an auto industry analyst with Standard & Poor’s. But “Chrysler’s story is still one of competition being the No. 1 issue .... The areas that have been Chrysler’s strength remain under pressure.”

Rival auto makers have introduced numerous well-received and competitively priced models in recent years in the market segments in which Chrysler is traditionally strong: minivans, pickup trucks and mid-size SUVs.

“We are getting some support from the overall economic development, but at the same time the competitive environment is very, very tough,” Zetsche said.

The Japanese yen, for instance, has strengthened 28% against the U.S. dollar since January 2000, giving Japanese auto makers a significant price advantage in the American market, he said.

Chrysler’s U.S. sales fell 8% to 542,199 cars and trucks in the first quarter from 596,811 vehicles in the same period a year earlier, according to Autodata Corp. Chrysler had a 13.8% share of the U.S. market in the quarter, down from 14.4% a year earlier.

Chrysler Group had an operating loss of $1.7 billion in the second half of 2000 because of a bloated cost structure, missteps in product pricing and intense spending on rebates and other incentives to boost sales.

The company lost about $2 billion in 2001.

In February of last year, Zetsche announced a turnaround plan that revolved around deep cost cutting and included eliminating 26,000 jobs, slashing dealer subsidies, closing six factories and reducing production elsewhere.

Cost cutting is progressing rapidly, Zetsche said. The company eliminated 20,500 jobs last year, ahead of schedule, and trimmed an additional 600 last quarter.

“The low-hanging fruits are already harvested. So by addressing more items, we are able to continue our momentum in this category,” he said.

Such actions include reducing reliance on precious metals and replacing chrome wheels with chrome-plated wheels.

DaimlerChrysler stock fell 50 cents on Thursday after the earnings report, closing at $46.09 on the New York Stock Exchange.

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Times wire services were used in compiling this report.

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Chrysler’s Long Road Back

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