Mercedes Woes Pull Down DaimlerChrysler

Thursday, February 10th 2005, 12:36 pm

By: News On 6

SINDELFINGEN, Germany (AP) _ Slumping profits at DaimlerChrysler AG's Mercedes division dragged fourth-quarter earnings down 63 percent, but strong performances from the once-hurting Chrysler and commercial vehicles divisions helped full-year results.

The automaker said Thursday that net profit for the October-December quarter fell to 526 million euros ($712 million), or 52 euro cents (70 cents) per share, from 1.4 billion euros, or 1.39 euros per share, in the fourth quarter of 2003.

Sales rose 7 percent to 37.7 billion euros ($51 billion) from 35.2 billion euros a year ago, boosted by the first-time inclusion of revenue from Japanese truck maker Mitsubishi Fuso.

Operating profits at Mercedes, hit by quality problems and the weak dollar, plummeted to just 20 million euros ($27 million) from 784 million euros in the fourth quarter of 2003. Fourth-quarter sales at the luxury division fell 2 percent to 12.8 billion euros ($17.4 billion) from 13 billion euros a year earlier.

Chief Executive Juergen Schrempp emphasized the company's dissatisfaction with the state of affairs at Mercedes, and proposed a ``road map'' for how it intends to improve the division's performance by 2007, including a comprehensive quality offensive and a focus on cutting costs. The company didn't rule out job cuts at the division.

``One thing is quite clear: even without the exchange-rate effects, the operating profit of the Mercedes Car Group in the third and fourth quarters would have been unacceptable,'' Schrempp said.

The fourth-quarter result was well below the 686 million euros ($878 million) profit forecast of analysts polled by Dow Jones Newswires.

DaimlerChrysler shares fell 1.5 percent 35.56 euros ($45.51) by early afternoon in Frankfurt.

Still, full-year earnings for 2004 rose significantly, with net income of 2.5 billion euros ($3.3 billion), up from 448 million euros the previous year. The full-year improvement was driven by a strong performance by the company's U.S. Chrysler division, which has bounced bank with hot-selling new models such as the 300 and 300C.

``The improved earnings at group level are primarily due to the significant increase in operating profit at the Chrysler Group and commercial vehicles,'' Schrempp said.

The weak dollar hurts Mercedes by making its products more expensive in the key U.S. market. At home, it faces increased competition from Munich-based BMW, which has launched several new models. Analysts say Mercedes' fortunes may improve as it comes out with new products over the next year or two.

Fourth-quarter operating earnings showed the role reversal between former problem case Chrysler and Mercedes. While earnings at Mercedes nearly evaporated, Chrysler brought in 386 million euros ($523 million), compared to 143 million euros for the same period a year ago.

The commercial vehicles division, which makes trucks and buses, increased operating earnings to 437 million euros ($592 million) for the quarter, compared to 344 million euros for the same period in 2003.

The troubles at Mercedes prompted DaimlerChrysler to back off its previous optimistic assumptions about 2005.

The company said it now expects ``slightly higher operating profit'' in 2005, ``after a weaker first and second quarter.''

At DaimlerChrysler's shareholders meeting last April, Schrempp said he expected a ``significant improvement'' in 2005 and 2006 earnings on the back of new models.

Problems with the ultra-compact Smart models have also hurt Mercedes' performance, although the company has pinned hopes on Smart's new four-seater, which has showed strong sales since its launch last year.

Eckhard Cordes, head of the Mercedes division, said the company was working on an improved business model for Smart, which could include expanding partnerships beyond an existing agreement with Mitsubishi Motors.

``We can't rule anything out,'' Cordes said.

DaimlerChrysler's participation in Germany's troubled satellite-controlled truck toll system, Toll Collect, led to a charge of 472 million euros ($604) for the year. The system suffered costly setbacks before launching on New Year's Day.