Reuteurs Reports: DaimlerChrysler set to post sharp drop in Q3 profit

FRANKFURT, Oct 19 Reuters published a story that reported DaimlerChrysler is set to post a sharp drop in third quarter profits on Tuesday as it struggles to get its U.S. Chrysler unit back in the black in tough markets after last month's attacks in the U.S.

DaimlerChrysler, in the midst of a $4 billion overhaul of Chrysler aimed at returning it to profit in 2002, faces a difficult market environment following the September 11 attacks and some analysts think the group may have to next week announce extra measures to meet its goals. A Reuters poll of 12 analysts put third quarter group operating profit at an average of 338 million euros ($305.1 million), down around 37 percent from a year ago. They gave a range of 130 million euros to 540 million euros.

In September, DaimlerChrysler said its profit targets, including a 2001 adjusted operating profit of 1.2-1.7 billion euros, may be at risk due to fears of a fall in U.S. consumer confidence and global recession sparked by the attacks.

"DaimlerChrysler is clearly the most hard hit (of the European carmakers) by the terrorist attacks in the USA," said West LB Panmure in a research note citing the company's exposure to the shaky U.S. auto market through its Chrysler and north American truck operations.

Last week DaimlerChrysler unveiled a $330 million overhaul of its U.S. Freightliner trucks unit which is suffering from a slump in the north American heavy truck market. The group also faces costs this year related to the restructuring of its Japanese partner Mitsubishi Motors Corp <7211.T>.

CHRYSLER MAIN ISSUE "Chrysler is the main issue as it should be the backbone of profits," said David Moorcroft, an analyst at Commerzbank. He noted that in 1999 the U.S. unit accounted for over half of the group's profits.

"I am sceptical now that they can reach their targets and I think they may need to extend the plan, maybe to adjust capacity further," he added.

Chrysler chief Dieter Zetsche said last week the company may "accelerate and intensify" parts of the restructuring plan which was announced in February.

That plan included 26,000 job cuts but the company shied away from closing plants due mainly to union agreements.

U.S. car and light vehicles sales showed resilience in September, but analysts argue it was due mainly to increased incentives which hit profits and may have also been boosted temporarily from recent cuts in U.S. interest rates.

Chrysler's sales fell 28 percent in September. Analysts said it was forced to boost incentives, despite early resistance, as General Motors Corp and Ford Motor Co. offered cheap loan deals for new autos. On Wednesday, GM said it would extend its zero- to low-interest incentives to mid November.

"Sales have stayed strong so far (in the U.S.) but with heavy discounting - the question is how long that can go on? It is an expensive policy," said Morgan Stanley analyst Greg Melich.

Investors will at all events be seeking further guidance at least for the rest of this year.

"I think they will have to give some guidance now. If they are unable to form an opinion about events that happened six weeks earlier, it doesn't say much for their communications policy," said Michael Raab, an analyst at Sal. Oppenheim & Cie.

Investors will also be watching developments at the trucks division after last week's restructuring plan for its loss-making Freightliner trucks unit.

The company does not break out results for Freightliner separately but it said last week the commercial vehicles division as a whole would post a "slightly positive result" for the full year.

Any indication that margins at its luxury Mercedes-Benz unit may be slipping would be a very bad sign, said analysts. Mercedes is propping up profits for the whole group.