Mercedes CFO claims significant quality improvements in last year

Chief financial officer Manfred Gentz told analysts and journalists in a conference call that closer quality controls at Mercedes were paying off and that the expense should begin to diminish as the company pays out less to fix flaws.

"The positive story is, we can say and prove that vehicles that left our factory a year ago, there were almost no problems and the quality is significantly better than some of the vehicles we delivered in earlier years," Gentz said.

DaimlerChrysler Posts 3Q Profit

10.28.2004, 12:55 PM

DaimlerChrysler AG reported third quarter profits of almost 1 billion euros on Thursday, rebounding from a year-earlier loss, thanks to a strong performance from a Chrysler division rejuvenated by new models like the 300C sedan and Dodge Magnum wagon.

The giant automaker said it earned 951 million euros ($1.18 billion) net profit in the third quarter, reversing a 1.7 billion euro loss from the same quarter a year ago, when the company had a 2.0 billion euro deduction from earnings for the reduced value of its stake in aerospace consortium EADS.

Profits sagged 62 percent in the July-September period, however, at Mercedes Car Group, whose earnings helped get the company through a costly three-year restructuring at Chrysler.

The new model launches at Chrysler helped raise the division's operating profit to 217 million euros ($269 million) from 147 million euros a year ago, another confirmation of the progress of a three-year turnaround at the once-troubled division.

A further boost came from financial services, which contributed 412 million euros ($512 million). And the company's result got help from another former turnaround case, its truck and bus division, which stayed in the black - although profits dipped to 159 million euros ($197 million) from 195 million euros.

Those strong divisions pushed net profit beyond the average expectation of 728 million euros ($904 million) among analysts surveyed by Dow Jones Newswires. The company's stock was down 0.64 percent at 32.54 euros ($41.32) in afternoon trading in Frankfurt.

The rough spot was luxury division Mercedes, which also includes the Smart small car division. Operating operating profit fell to 304 million euros ($377 million) from 793 million euros a year ago. The division, whose dependable profits sustained the company while Chrysler was bleeding money, suffered from weaker sales in Western Europe, and from added costs to improve quality and roll out new models, the company said.

Operating profit excludes financial items such as interest and taxes; net figures weren't available for divisions.

Chief financial officer Manfred Gentz told analysts and journalists in a conference call that closer quality controls at Mercedes were paying off and that the expense should begin to diminish as the company pays out less to fix flaws.

"The positive story is, we can say and prove that vehicles that left our factory a year ago, there were almost no problems and the quality is significantly better than some of the vehicles we delivered in earlier years," Gentz said.

"The bulk of the problem will be resolved in 2004 and 2005," he said.

Gentz also raised the possibility of major change at Smart, whose performance he called "disappointing.

"We have to decide what we are going to do with the Smart business," he said.

Gentz also said the company was being investigated by the U.S. Securities and Exchange Commission over alleged violations of the U.S. Foreign and Corrupt Practices Act of 1977, based on a complaint from a fired employee. Gentz didn't provide details but said the complaint "has no merit" in the company's view. The act bars U.S. companies from bribing foreign officials and requires compliance controls.

Overall sales revenue for the company as a whole rose 2.3 percent to

34.9 billion euros ($43.3 billion).

This quarter's result was boosted by several one-time gains, including

120 million euros ($149 million) from an adjustment of the sale price of train maker Adtranz to Bombardier, and 60 million euros ($75 million) from ending a joint truck engine venture with Hyundai.

One-time losses included a 405 million euro ($503 million) charge to cover past quality problems and recalls at truckmaker Mitsubishi Fuso Truck and Bus Corp. and 119 million euros ($148 million) from a troubled consortium that is supposed to collect truck tolls for the German government.

The company also no longer has to show losses from Mitsubishi, its troubled Japanese partner. DaimlerChrysler's stake in Mitsubishi shrank after DaimlerChrysler declined to put more money into the company and Mitsubishi carried out a capital increase.