DaimlerChrysler Scales Back Forecasts

Massive bleeding at its U.S.-based auto unit hammered fourth-quarter earnings at DaimlerChrysler, the company said today in reporting $269 million in red ink — the first quarterly loss for the auto giant since Chrysler merged with Daimler-Benz in 1998.

DaimlerChrysler also warned that revenue and operating profit for the company as a whole would tumble this year.

The world's fifth biggest automaker reported today it lost $269 million for the October-December period.

That included losses at the troubled U.S. division of $1.3 billion, more than double the $512 million loss for the third quarter.

"The situation in the United States has deteriorated dramatically," said chief executive Juergen Schrempp, who has come under pressure from shareholder lawsuits and calls to resign because of the company's sagging bottom line.

"In addition, there were internal problems, which we now have to resolve. There is no hiding the fact," Schrempp said.

While acknowledging that past management mistakes contributed to the setbacks, Schrempp remained upbeat about his ability to turn things around, adding, "In the last few months, we have proved we can handle the situation."

DaimlerChrysler said it expects the Chrysler unit will return to profitability by 2002.

Cost-cutting Measures

Meanwhile, DaimlerChrysler also announced today that its 34 percent-owned Mitsubishi Motors unit would slash 9,500 jobs as it reduces production capacity.

Investors pushed DaimlerChrysler's stock price down $0.99 or 2.03 percent lower to $47.81 in morning trading on Wall Street as they digested the barrage of financial forecasts and lengthy restructuring plans.

DaimlerChrysler said a restructuring plan, which includes a detailed timeline for improvements and targets for operating profits as well as greater parts sharing between Mercedes-Benz, Chrysler and Mitsubishi, should generate 7.2 billion euros in extra revenue and savings through 2003 — and bring the Chrysler arm back into the black.

In the meantime, the restructuring plan is expected to help plunge the troubled U.S. unit into even deeper losses.

Analysts largely expected 2001 to be bleak for DaimlerChrysler, but the forecasts released today were even worse than expected said Georg Stuerzer, an auto analyst with Bayerische Hypo-Vereinsbank.

"2001 should be the lowpoint of earnings for the foreseeable future," Stuerzer said.

After booking a restructuring charge of $3.9 billion for the restructuring plan, DaimlerChrysler said Chrysler would post an operating loss between $2 billion and $2.5 billion this year.

Last year, operating profits at Chrysler dropped 90 percent to $470 million, as the company was buffeted by a slowing U.S. auto market and increased competition.

The Stuttgart-based parent company expects its overall operating profit will tumble by as much as 76 percent this year, hobbled by the losses at the Chrysler division.

It also warned that revenues would fall 13 percent to $130 billion this year, from $152.4 billion in 2000.

Return to Profitability

DaimlerChrysler is setting goals to cut staff, cut costs and improve revenues through 2003. Chrysler should break even in 2002 and report a $2 billion operating profit by 2003, the company predicted.

"Their targets are a little more aggressive than we expected," said Lars Ziehn, an analyst at Deutsche Bank in Frankfurt. "If they convince us that they can reach them, then there's some upside in the share price. If they fail, the stock could fall further."

In 2000, DaimlerChrysler earnings excluding gains fell 44 percent to $3.3 billion, or $3.26 per share.

Mounting losses at Chrysler ate away at record profits achieved in the first two quarters.

Analysts say the decline at Chrysler stemmed from producing old-version minivans right up until the new models went on sale last summer, forcing it to sell huge numbers of the older models at deep discount.

Chrysler also underestimated demand for its popular retro-style PT Cruiser and failed to cash in on the hot-selling cars by getting enough of them to market.

Change in Strategy

Under the plan detailed today by Chrysler chief executive Dieter Zetsche, the Chrysler unit will renew two-thirds of its models through 2003, including the new Jeep Liberty and the Dodge Ram, both due to launch this year.

Chrysler will also cooperate more closely with Mercedes-Benz and Japan's Mitsubishi.

Zetsche said Chrysler will share car platforms with Mitsubishi for certain small- and medium-sized models, and will tap such Mercedes components as steering columns, seat frames and axles for its large cars.

The number of platforms — vehicle undercarriages — used by Chrysler and Mitsubishi will be cut to as low as 13 from 29 at present.

Cooperation between the brands will be overseen by a new Executive Automotive Committee to be headed by Schrempp and management board member Juergen Hubbert, responsible for Mercedes-Benz Passenger Cars and Smart.

In addition to the 9,500 Mitsubishi job cuts, DaimlerChrysler said Mitsubishi would reduce production capacity by 20 percent and ask suppliers to cut prices by 15 percent by 2003.

Those job cuts follow an announcement last month that DaimlerChrysler would lay off 26,000 workers at Chrysler over the next three years, close six Chrysler plants and ask the unit's suppliers for similar price cuts.