Chrysler Boosts Parent’s Earnings
The struggling Chrysler Group finally broke into net profitability in the second quarter, spurring its parent company, DaimlerChrysler, to a 52% leap in profit and to increase its earnings forecast for the full year.
DaimlerChrysler Chief Executive Juergen Schrempp credited the $777-million operating profit at Chrysler Group--made up of the Chrysler, Dodge and Jeep brands--to the overhaul that began 18 months ago. In turn, he said, the restructuring has produced strong results for the parent, which also produces Mercedes-Benz cars and trucks.
“Good progress with restructuring, high cost savings and efficiency improvements justify our assumptions that Chrysler should report a positive result for the second half of 2002, despite difficult market conditions, and should thus achieve an operating profit for the year as a whole,” Schrempp said in a conference call from Germany with analysts and reporters.
It was the third straight day of better-than-expected earnings releases from Detroit’s Big Three auto makers. On Tuesday, General Motors Corp. said it earned $1.3 billion in the quarter, and Ford Motor Co., which lost $5.45 billion last year, said Wednesday that it made a profit of $570 million.
“The news from all three was good, but some additional good news is on the way: There is likely to be weakening of the dollar,” said Paul Taylor, chief economist for the National Automobile Dealers Assn.
The strong dollar has helped importers that build cars and trucks overseas, as their products became more affordable when denominated in dollars. As a result of that and the Sept. 11 attacks, which brought vehicle purchases to a near-standstill, the Big Three launched deep discounting in the form of rebates and interest-free loans.
The interest-free financing was revived by GM this month, quickly followed by Ford and Chrysler, and is one reason auto sales have remained strong, reaching a near-record pace this month.
“The current incentives are very aggressive and definitely have consumers out buying new vehicles,” said Walter McManus, executive director of global forecasting at J.D. Power & Associates, in a study issued Thursday. “We expect this could be one of the top five highest sales months in history” on a seasonally adjusted basis.
The U.S. auto industry raced to a record 17.4 million sales in 2000 and a second-best 17.1 million in 2001. July 2002 sales, however, were running at a seasonally adjusted rate of 18.1 million, the J.D. Power study said.
The beating the stock market has taken in recent weeks actually might prompt consumers to consider a big-ticket item such as a new car.
“Americans might say, ‘My 401(k) looks shot and my dollar won’t have the same purchasing power next year, so I’ll lock in my [Mercedes] S-class or Audi A6 now,’ ” the dealer group’s Taylor said. “It’s a good time to buy European luxury cars, but it’s also a good time to buy American luxury cars because there are some phenomenal financing deals available.”
Analysts see things continuing well for the industry.
“The economy is fine. Interest rates are benign,” said Michael Bruynesteyn, auto analyst for Prudential Securities. “The average consumer feels some pain in his 401(k), but for most people the bulk of their wealth is in their home, so they’re feeling pretty good.”
Chrysler Group’s operating profit contrasts with a loss in last year’s second quarter of $146 million. Though Chrysler was hit with a restructuring charge of $369 million, it still posted a net profit, said DaimlerChrysler, which does not release net figures for the unit. Last quarter Chrysler Group posted its first operating profit, $111 million, after six consecutive quarters of losses, but was hit by a one-time $300-million restructuring charge that left the U.S.-based operations with another net loss.
Altogether, the Chrysler Group had an operating loss of $1.9 billion last year.
Stuttgart, Germany-based DaimlerChrysler’s operating profit for the second quarter was $1.2 billion, or $1.19 a share, up from $500 million, or 52 cents a share, in the second quarter of 2001. Net profit was $1.1 billion, or $1.08 a share, compared with $700 million, or 72 cents a share, in last year’s second quarter.
Quarterly revenue was $38.8 billion, down from $40.8 billion a year earlier.
DaimlerChrysler’s original forecast was for 2002 operating profit to be twice the 1.3 billion euros reached in 2001. Schrempp said Thursday that the company should realize “well more than three times” that figure for 2002.
DaimlerChrysler shares closed at $47.55 Thursday, up 85 cents, on the New York Stock Exchange.
