DaimlerChrysler Group of Companies at A (low) and R-1 (low), LT Trend Now Negative

While the long-term ratings of the DaimlerChrysler group of companies
are confirmed, the trend is being changed from Stable to Negative. The
commercial paper rating is confirmed with a Stable trend. The
confirmation recognizes that the Company's financial profile remains
respectable, albeit weakened, despite deteriorating market conditions
and the progress made by the Company in turning around its troubled
Chrysler unit. The trend change reflects the still significant
challenges facing the Company in turning around its Chrysler and
Freightliner units which have been made more difficult with the weakened
North American economy.
Chrysler has made steady progress in executing its turnaround plan
articulated in early 2001. However, recent developments have made it
more difficult for Chrysler to execute its recovery plan. (1)
Intensified competition in the North American market has led to sharper
market loss. Chrysler's market share declined to 12.0% in October 2001
from a target of 14% in the turnaround plan despite high incentive
spending. (2) The events of September 11 have worsened market conditions
and vehicle demand. The lower volume will raise the break-even point and
reduce the amount of restructuring benefits. The Company's option is
further hindered by a labour agreement that restricts plant closure
until 2002 in Canada and 2003 in the U.S. (3) The use of high incentives
to boost sales is not showing any signs of abating. This will continue
to pressure margin and profitability and could lead to a "pull forward"
of sales leading to a more prolonged downturn. Moreover, the weakening
North American economy will further delay the recovery in the commercial
truck market jeopardizing Freightliner's turnaround efforts. In
addition, Freightliner's profitability will also be impacted by its
aggressive use of a vehicle buyback guarantee.
Nevertheless, the ratings continue to be supported by the Company's
diversity of businesses and geographical markets and a still improving
Mercedes-Benz, the luxury car unit. In addition, the Company still has
ample liquidity (cash on hand and bank lines) to fund its operating
needs. Moreover, proceeds from the planned sale of non-core assets,
notably the expected sale of Debis Systemhaus to Deutsche Telekom for
about EUR4.6 billion in early 2002 will further strengthen the balance
sheet. 
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