Unlike rivals, Chrysler turns profit in sales

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Unlike rivals, Chrysler turns profit in sales
October 29, 2004
The Auburn Hills-based Chrysler Group did something crosstown rivals General Motors Corp. and Ford Motor Co. could not do during the third quarter of the year: It made money selling cars and trucks.
The German automotive giant DaimlerChrysler AG released its financial results for the July-September period on Thursday, and the accomplishment in its U.S.-based unit, which posted an operating profit of $269 million, seems to make Chrysler the star automaker in Detroit at the moment.
By comparison, GM and Ford reported substantial third-quarter losses in their automotive business, of $130 million and $609 million, respectively. Those automakers only made money because their financing divisions more than compensated for the losses.
At Chrysler, however, nine new models, including two hit cars, helped the division post a profit in the July-September period and boost its share of the U.S. market this year -- something, again, that GM and Ford have been unable to do.
But another factor in Chrysler's rebound is its relentless cost-cutting. Data released Thursday showed the division had eliminated 9,870 jobs over the past year, or about 10 percent of its workforce.
That success in Detroit gave a financial boost to the German owners. For the quarter, DaimlerChrysler posted a profit of $1.2 billion, or $1.17 a share, up from a loss of $1.9 billion, or $1.90 a share, last year.
Operating profits declined in the Mercedes luxury car and commercial vehicle divisions of the Stuttgart, Germany-based company. But gains made by the Chrysler Group and DaimlerChrysler's credit operations, which makes auto loans, as well as other investments, more than made up for those slips.
Chrysler's operating profit during the third quarter represents a 57-percent improvement from July through September 2003, when the automaker earned $171 million.
The Chrysler Group, which makes Chrysler, Dodge and Jeep brand cars and trucks, has done particularly well with the Chrysler 300 sedan and Dodge Magnum station wagon. A new Jeep Grand Cherokee sport-utility vehicle and Dodge Dakota pickup also hit showrooms recently.
The new products have helped Chrysler make money five quarters in a row -- an improvement that was desperately needed.
Chrysler lost a combined $4 billion in 2001 and 2002, and, despite a 3-year turnaround plan that was supposed to generate a profit last year, the company posted an operating loss of $637 million in 2003. Some industry insiders have said Chrysler needs to prove itself this year, calling this a make-or-break year for the automaker.
On Thursday, Chrysler Chief Executive Officer Dieter Zetsche confidently told journalists he expects that the company's momentum in the market will continue, keeping the company on track "to achieve considerable positive results in 2004."
"I feel very good," he said.
Worldwide sales for the Chrysler Group decreased to 594,929 vehicles in the quarter, from 628,965 a year ago. Part of that decline was caused by the changeover for the new Jeep Grand Cherokee, which went on sale in September. Revenues subsequently decreased to $14.3 billion from July through September, down 2 percent from $14.6 billion a year ago.
Still, the division benefited from several factors that aided in its profitability:
•Improved sales to retail customers, rather than fleet sales to business customers who demand a discount. Fleet sales are down 1.2 percent for the year. Retail sales, meanwhile, are up 3 percent.
•Customers are opting for a richer mix of products, such as vehicles with a Hemi engine, which are more profitable on a per-vehicle basis.
•Reduced marketing expenses, such as rebates. Instead of spending 22.4 percent of its revenue on marketing costs, as it did in 2003, Chrysler is spending only 18.9 percent through the first nine months of 2004.
•A 10-percent reduction in employees. The Chrysler Group reduced its number of employees to 84,701 at the end of September, down 9,870 workers from a year ago. About 4,482 of those workers have been removed from the payroll since June, according to reports from the automaker. Most of those job reductions -- about 3,500 -- came from Chrysler's divestiture of New Venture Gear in Troy.
Chrysler's performance helped boost the DaimlerChrysler's year-to-date figures as well.
For the year through September, DaimlerChrysler's net income grew to $2.4 billion, or $2.38 per share. That's up from a loss of $1.1 billion, or $1.10 a share, for the same period a year ago. Worldwide revenues for the year through September improved to $129.5 billion from $119.5 billion a year ago.
DaimlerChrysler's balance sheet also was helped this year by estimated savings from the Medicare Prescription Drug, Improvement and Modernization Act of 2003.
That law, which reduces the automaker's health care obligations to retirees, will improve the bottom line by about $194 million this year and $1.3 billion overall. During the third quarter, it resulted in a savings of $48 million.
Despite the positive company-wide performance, Manfred Gentz, DaimlerChrysler's chief financial officer, predicted that auto sales would slow during the rest of the year. That could result in production cuts for the Chrysler Group because, Gentz said, inventory levels of Chrysler, Dodge and Jeep products are slightly higher than the corporation would like.
It "should be a little bit lower," Gentz said. "It is not dangerous. We are watching the situation."
Zetsche attributed the fourth quarter's lukewarm outlook to rising oil prices and distraction caused by the U.S. presidential election, as well as some payback from strong sales in prior months.
However, he was optimistic, noting that Chrysler has improved its market share this year. Zetsche said that there seems to be a conventional wisdom that only Asian automakers gain market share in the United States.
"We're changing that paradigm," he said.
Chrysler's share of the U.S. market has grown two-tenths of a percentage point, to 13 percent through September.
Even some analysts seemed convinced that the Chrysler Group is on the mend.
The credit rating agency Standard & Poor's on Thursday wrote that although Chrysler's long-term prospects are "clouded" by a fiercely competitive marketplace, "the risk that Chrysler could become a significant drain on the company's resources over the next few years is abating."
Contact SARAH A. WEBSTER at 313-222-5394 or snipped-for-privacy@freepress.com
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