Fork in Road for DaimlerChrysler

D E T R O I T, Feb. 24, 2001 -- 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 StephenReitman, a London-based analyst with Merrill Lynch. "If people areexpecting a golden bullet that immediately leads to a cure, they'regoing to be disappointed. Clearly, the issues are complicated."

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

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

Did Job Cuts Go Far Enough?

Chrysler has already revealed some of its turnaround package. Itplans to cut 26,000 jobs — one-fifth of its workforce — over thenext three years, though some analysts question whether the companyslashed deep enough.

Chrysler also plans to close six plants, is squeezing suppliersto cut prices by as much as 15 percent and looks to trimpotentially hundreds of millions of dollars in dealershipsubsidies.

The automaker will fill in the gaps Monday, including some wordon the comeback's cost, which many of the industry's watchersenvision could reach as much as $6 billion. Chrysler will alsoreveal the extent of its fourth-quarter losses, expected to be morethan twice the $512 million in red ink Chrysler posted for theprevious three months.

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

Prudential Securities' Mike Bruynesteyn believes Chrysler couldbe back in the black sometime next year — but nowhere near 1998 or1999 pretax operating profits that reached $5 billion.

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

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

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

Tough Times Faced in Past

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

Analysts also say Chrysler erred by producing old-versionminivans right up until the new models went on sale last summer,forcing it to sell huge numbers of the older models at deepdiscount.

Chrysler didn't help its cause by underestimating demand for itspopular retro-style PT Cruiser, and Daimler-Benz and Chrysler havebeen reluctant to share parts to cut costs.

Looking for growth opportunities, the world's fifth-largestautomaker bought large stakes in Japan's Mitsubishi and SouthKorea's Hyundai to extend its global reach into Asia. In theprocess, the German-led company's manufacturing operations endedthe fourth quarter with no net cash reserves, typically a cushionagainst market downturns.

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

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