DaimlerChrysler Warns of Losses

DETROIT (AP) â€” DaimlerChrysler AG's leaders told shareholders Monday just how bad things have gotten at Chrysler in 2000 â€” and warned that 2001 might not be any better. <br><br>In a letter from

Monday, December 18th 2000, 12:00 am

By: News On 6

DETROIT (AP) â€” DaimlerChrysler AG's leaders told shareholders Monday just how bad things have gotten at Chrysler in 2000 â€” and warned that 2001 might not be any better.

In a letter from chief executive Juergen Schrempp and chief financial officer Manfred Gentz, DaimlerChrysler indicated the Chrysler division would post a loss of about $1.2 billion in the fourth quarter.

They blamed the losses on tough competition and on the costs of launching several new models. But those factors, along with a slowing U.S. vehicle market, high incentives and slow sales of key Chrysler models will be hard to turn around next year.

``In 2001, we believe that the competitive market environment will continue to intensify and that our underlying financial performance, particularly in the United States, will reflect this,'' they wrote. ``We will face a year even more challenging than 2000.''

Schrempp and Gentz didn't give specific figures for a fourth-quarter loss, but said that Chrysler's operating profit for all of 2000 would shrivel to 500 million euros, or $445 million.

Reacting to the bad news, shareholders drove the share price down $1.24 to $42.25 in afternoon trading on the New York Stock Exchange.

Chrysler had a busy year, launching new models of minivans and midsize cars that account for about 40 percent of its volume. Such launches are expensive, as companies pay to ramp up production, advertise the new vehicles and hike up rebates and cheap loans to clear out old models.

During its last minivan launch in 1995, Chrysler ran short of minivans. This time, the company kept production of the old models high, even as the new ones were being built. But since 1995, the market for minivans has become far more competitive, and the old models have not kept up.

The result: Chrysler had a glut of old minivans and had to jack up incentives, one of the main reasons it lost $512 million in the third quarter. Demand for the new models has suffered â€” sales were down 16 percent in November. The efforts also took money away from advertising the new midsize sedans and coupes.

Next year, Chrysler will introduce a new small sport utility, the Jeep Liberty, and new versions of its Ram pickups. Those new vehicles should account for about 27 percent of its total volume â€” still higher than the ideal of 18 to 20 percent, said Prudential Securities analyst Michael Bruynesteyn.

``Other companies, like Ford, have a much more stable cadence'' in rolling out new vehicles, he said. ``It's going to be tough for them â€” just like this year, they've got two big launches.''

Along with minivans, Chrysler faces a mounting number of competitors for the sport utility vehicles and trucks it used to rely on for most of its profits. General Motors, Ford, Toyota all have new pickups and SUVs. Next year GM and Ford will bring new versions of their popular midsize SUVs â€” the Ford Explorer and Chevrolet TrailBlazer â€” which will also put pressure on Chrysler's SUVs.

On top of all this, customers are starting to pull back from the auto industry after two record years for sales. Most forecasters have pushed their predictions for 2001's total sales below results from this year and last. The traffic of customers at dealerships is down 15 percent this month, according to Art Spinella of CNW Marketing Research, while traffic at used dealerships is up â€” both signs of a slowdown.

``The pattern is decline throughout next year as the industry heads back toward the trend of the past few years,'' said Van Bussman, DaimlerChrysler's chief economist.

While the warning on profits was not a surprise, some analysts suggested that new Chrysler president Dieter Zetsche will make the quarter look worse than it actually is.

``There is a political element to the figures,'' said Juergen Pieper, an auto analyst at Metzler Bank in Frankfurt. ``Zetsche wants to make sure the situation at Chrysler looks as bad as possible to give him plenty of room to show improvement in the near future.''

The Chrysler losses will also hammer DaimlerChrysler's overall earnings for the year, they warned. Corporate operating earnings should come in between $8.4 billion and $8.9 billion, including one-time effects that account for $4 billion, Schrempp said.

As part of its rebound plan, DaimlerChrysler said Monday that it would replace 80 percent of its fleet over the next five years by launching 60 new models.

The company also said it would cut costs by sharing more parts between the company's divisions ``where appropriate.'' At Chrysler, Schrempp said the new management team will have to cut production to keep in line with weakened demand.

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