DaimlerChrysler Rebounds With Fivefold Increase in 2Q Profits, but Mercedes Earnings Down

FRANKFURT, Germany July 29, 2004; David Mchugh writing for the AP reported that a strong rebound at former problem case Chrysler helped DaimlerChrysler AG post a fivefold increase in second-quarter profits Thursday, but earnings mainstay Mercedes -- which got a new chief -- saw its earnings slip.

Net profit jumped to 554 million euros ($670 million) in the April-June quarter from 109 million euros a year ago. Worldwide sales rose 9 percent to 37.1 billion euros ($44.9 billion) from 33.9 billion euros in the same quarter a year ago.

Stronger sales thanks to new, more profitable Chrysler models such as the Dodge Durango sport-utility, Dodge Magnum station wagon, 300C sedan and new minivans boosted the Chrysler division's revenue by 12 percent and led the division to an operating profit of 516 million euros ($614 million) in the quarter.

The division bounced back from a terrible quarter a year ago, when it lost 948 million euros due to price wars with U.S. competitors Ford Motor Co. and General Motors Corp.

Chrysler has now posted four straight quarters of operating profit and appears to have taken the next step to recovery beyond cost-cutting and layoffs by coming up with attractive new models that can drive earnings.

Chrysler's improvement was coupled with a good showing by the company's commercial vehicles unit, another former restructuring case, which more than doubled operating profit to 468 million euros ($566 million) from 222 million euros a year ago.

"We are still not where we want to be, but our second-quarter results are a step in the right direction," chief executive Juergen Schrempp said in a conference call.

In an interview with the Associated Press, Chrysler president and chief executive Dieter Zetsche said business may slow somewhat in the third quarter because of such factors as production interruptions as other new models are launched, but he said he's bullish beyond that.

"My caution is you cannot look at the year by trying to multiply the first half by two, mainly because of the character of the third quarter," Zetsche said. "But, we're certainly confident for the year and for the years to come."

DaimlerChrysler slightly brightened its outlook for the year, saying operating earnings would show a "significant improvement" on last year's 5.12 billion euros before special items, instead of simply an "improvement."

The company has slashed thousands of jobs to put the two troubled divisions back on their feet over the past several years.

Analyst Michael Raab at Sal. Oppenheim private bankers in Frankfurt said that the new model offensive launched by Chrysler head Dieter Zetsche appears to be working.

"Signs are increasing that Chrysler is recuperating and that their strategy of improving their image and enhancing their pricing position through new and attractive models, up until now, has borne fruit," Raab said.

He said it would take several more years to be sure the division was back on track: "As the folks in the States say, it ain't over 'til the fat lady sings."

Even as the two former problem divisions turn in solid results, Mercedes reported an 18 percent drop in operating profit to 703 million euros ($851 million).

The reasons were slower sales due to an older model line and costs for launching new models such as the A-class subcompact, due out in September, DaimlerChrysler said.

The company also announced that Eckhard Cordes, who led commercial vehicles through its turnaround, will be new head of Mercedes car group effective Oct. 1.

Cordes replaces 65-year-old Juergen Hubbert, who is leaving to head the executive automotive committee -- which is responsible for efficiency among the firm's various divisions -- before his anticipated retirement from top management in April 2005.

In the management changes decided by the board of directors Thursday, Cordes, 53, will be replaced at commercial vehicles by Andreas Renschler, 46, head of the Smart compact car division.

Smart will be run by Ulrich Walker, a 52-year-old executive from Mitsubishi Motors Corp.

DaimlerChrysler bought a 37 percent stake in Mitsubishi in 2000 but recently has declined to invest more money in the troubled company.

The company said Mercedes' slight decrease in unit sales would be made up in the second half of the year, when new models launched in the first half -- its C-class Mercedes, SLK roadster and a Smart compact -- begin contributing more strongly to sales, along with models coming later this year such as the A-Class compact and CLS coupe.

Mercedes faces pressure from BMW, which is well along in a new model offensive, and Toyota's Lexus brand.

DaimlerChrysler has already moved to cut costs at Mercedes, persuading employees at its flagship plant in Sindelfingen to accept 500 million euros ($600 million) in concessions ahead of Cordes taking over.

But analysts say labor costs are only part of the problem and the company could do more with sharing parts among different models.

DaimlerChrysler's net result fell short of the average forecast among stock analysts surveyed by Dow Jones Newswires of 809 million euros ($979 million.) One reason was charges of around 500 million euros ($600 million) from DaimlerChrysler's share of losses in Mitsubishi Motors. Its original 37 percent stake has been reduced to less than 25 percent because DaimlerChrysler declined to take part in a capital increase at the troubled company. Mitsubishi will no longer be reflected in profit and loss statements, the company said.