Chrysler's profit dives 91%

July 28, 2006|By NEW YORK TIMES NEWS SERVICE

DETROIT -- Since their 1998 merger creating the world's fifth-largest automaker, Mercedes Benz and Chrysler have seemed to be sitting at either end of a trans-Atlantic seesaw.

When Chrysler was down, Mercedes was up. Then, a reinvigorated Chrysler helped the company stay profitable last year while it fixed problems at Mercedes.

Now, Mercedes has become the heavyweight again, as Chrysler grapples with slumping sales that it blames on high fuel prices and intense competition in the United States.

Chrysler's profits fell 91 percent in the second quarter, to $65 million from $695 million, but DaimlerChrysler more than doubled its earnings, aided by a 6 percent increase in sales of Mercedes cars.

The automaker also said yesterday that it would need more help from Mercedes this summer, projecting that the Chrysler Group would lose as much as $639 million from July through September. That would be the division's first quarterly loss in more than three years.

But Dieter Zetsche, DaimlerChrysler's chief executive, said Chrysler would rebound in the fourth quarter, as new models arrived in showrooms. He pointed to the 2007 Dodge Nitro, a midsize sport utility vehicle; the Chrysler Sebring, a midsize sedan; and the Jeep Patriot, a compact SUV. He insisted that Chrysler would finish the year in the black.

Adam Jonas, an analyst with Morgan Stanley in London, called that forecast "difficult to achieve, in our view," noting to clients that Chrysler would need to earn $330 million in the fourth quarter for a full-year profit.

Because unsold inventory is piling up on dealers' lots, Chrysler said it planned to cut production and shipments of vehicles in the third quarter. In June, dealers had a 91-day supply of vehicles on hand, compared with an industry average of about 60 days.

"We think this will get us back on the right track," said Thomas W. LaSorda, chief executive of the Chrysler Group, in a conference call with analysts and reporters. Separately, Chrysler said that it had extended LaSorda's contract by five years, through 2012.

For the second quarter, DaimlerChrysler said operating income rose 11 percent from the comparable period a year ago, reaching 1.86 billion euros ($2.4 billion), even though it sold 3 percent fewer vehicles, or 1.3 million in all.

Shares of DaimlerChrysler rose 60 cents, or 1.2 percent, to close at $50.12 yesterday.

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