Fork in Road for DaimlerChrysler

Already versed in battling back from bankruptcy's brink, DaimlerChrysler AG's Chrysler unit stands ready to tell the world how it hopes to stem its latest, troubling tide of red ink.

"The issue is what are people's expectations," said Stephen Reitman, a London-based analyst with Merrill Lynch. "If people are expecting a golden bullet that immediately leads to a cure, they're going to be disappointed. Clearly, the issues are complicated."

Chrysler will unveil Monday what Reitman calls its "road map to recovery," hoping to quell claims by some that the company's woes show the 1998 deal that joined Germany-based Daimler-Benz AG and the American Chrysler Corp. hasn't lived up to its promise.

"We have to fix the problem at Chrysler, and we will," Dieter Zetsche, installed in November as Chrysler's president, chief executive and the turnaround bid's point man, said recently.

Did Job Cuts Go Far Enough?

Chrysler has already revealed some of its turnaround package. It plans to cut 26,000 jobs — one-fifth of its workforce — over the next three years, though some analysts question whether the company slashed deep enough.

Chrysler also plans to close six plants, is squeezing suppliers to cut prices by as much as 15 percent and looks to trim potentially hundreds of millions of dollars in dealership subsidies.

The automaker will fill in the gaps Monday, including some word on the comeback's cost, which many of the industry's watchers envision could reach as much as $6 billion. Chrysler will also reveal the extent of its fourth-quarter losses, expected to be more than twice the $512 million in red ink Chrysler posted for the previous three months.

DaimlerChrysler has insisted it has no plans to spin off or sell Chrysler but still perceives vulnerability, asking Deutsche Bank — the automaker's largest shareholder — to help craft a defense strategy against a rival's possible takeover bid.

Prudential Securities' Mike Bruynesteyn believes Chrysler could be back in the black sometime next year — but nowhere near 1998 or 1999 pretax operating profits that reached $5 billion.

"I wonder if they'll ever get there again, given that the competitive environment has changed," he said. "I think it'll take a couple of years to get to even half the level they were before.

"It's just a tougher market, and taking costs out is extremely difficult to do."

Zetsche has said drastic belt-tightening should make Chrysler more nimble at a time of soft U.S. sales, bloated inventories and market shares shaved a bit by foreign rivals.

Tough Times Faced in Past

Some analysts have faulted Chrysler's lag in streamlining and its supposed missteps long before the 1998 takeover by Daimler-Benz. Prior to that $36 billion deal, they say, Chrysler's lost cost discipline was evidenced by a white-collar staff that doubled to roughly 30,000 in the past decade.

Analysts also say Chrysler erred by 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 didn't help its cause by underestimating demand for its popular retro-style PT Cruiser, and Daimler-Benz and Chrysler have been reluctant to share parts to cut costs.

Looking for growth opportunities, the world's fifth-largest automaker bought large stakes in Japan's Mitsubishi and South Korea's Hyundai to extend its global reach into Asia. In the process, the German-led company's manufacturing operations ended the fourth quarter with no net cash reserves, typically a cushion against market downturns.

To be sure, Chrysler has known hard times before. In 1978, the company was at bankruptcy's brink when its board turned to former Ford Motor Co. president Lee Iacocca, who negotiated a bailout that included Chrysler plant closings and layoffs, worker concessions and $1.5 billion in federal loan guarantees.

Chrysler recovered swiftly from that, however; by 1983, the automaker had paid back guaranteed loans seven years early.

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