DaimlerChrysler Sees More Difficulties Ahead

DaimlerChyrsler's luxury unit Mercedes-Benz on Wednesday reported its sixth successive record annual results, but not even its success was enough to compensate for the difficulties with which the automobile giant has been battling for the past year and a half, in particular at its U.S. unit Chrysler.

On Wednesday, DaimlerChrysler reported that it was mostly the 2.2 billion euro operating loss and 3.3 billion euro restructuring costs at Chrysler that led the group to book a 662 million euro net loss for 2001. Losses and restructuring costs at U.S. trucks unit Freightliner and at Japanese subsidiary Mitsubishi also contributed to the poor performance.

But Jürgen Schrempp has no intention of abandoning the group's global orientation, even though it has brought little success so far. "Our strategy is based on a global presence", he said, of which Chrysler is "a very important component". He added: "There are people who change their strategy when they can't solve their operational problems. We intend to solve the problems."

But Schrempp warned that the group continued to face difficulties ahead, with group sales forecast to fall 7% to 142 billion euro this year. "Nobody expects the downturn in the economy to leave no traces on this company," he said.

Schrempp declined to give a concrete profit outlook for 2002, saying that the group would "very clearly" exceed the operating profit of 2001. People close to DaimlerChrysler said the chief executive was actually expecting a threefold increase in operating profit, but he had not ventured to make these expectations public.

The group's vague forecasts have been causing confusion among DaimlerChrysler's shareholders since the start of this month. DaimlerChrysler's share has fallen almost 12%, or 6 euro, since then. "The confusion is still not resolved," said an analyst at HypoVereinsbank. On Wednesday, the stock closed up 2.55% at 41.79 euro.

The fact that DaimlerChrysler managed to meet the targets it announced a year ago will have done little to appease shareholders. Operating profit excluding one-off effects came in at 1.35 billion euro, within the targeted band of 1.2 to 1.7 billion euro.

Dieter Zetsche, who took over as Chrysler chairman in autumn 2000, managed to limit operating losses at his unit to 2.183 billion euro, within the target band of 2.2 to 2.6 billion euro. This was achieved despite huge discounting by Chrysler, which joined in with a price-cutting battle waged by its two major rivals, Ford and General Motors, which was stepped up after Sept. 11.

But despite the deterioration in the global economic climate, Zetsche remains confident that he can also meet his 2002 target of returning Chrysler to profit. According to internal plans, Zetsche had previously forecast that Chrysler would book a clear profit for the current year. This has now given him room to maneuver, in particular since he has stepped up cost-cutting measures still further since Sept. 11.

But apart from implementing rationalization measures, Zetsche will have few instruments at his disposal that will allow him to influence developments this year. He will have to overcome another drought period until at least 2003 and, unlike Jürgen Hubbert, his counterpart at Mercedes-Benz, cannot rely on the launch of several new models.

Hubbert said that despite the difficult market conditions, he expects Mercedes-Benz to at least match last year's results. Adjusted for one-off effects, the unit last year raised operating profit by 3%, slightly below analysts' expectations.

Hubbert said he expects to win market share as new models were due to be launched throughout the year. Moreover, Mercedes-Benz has been less affected by losses incurred by its Smart unit, which sold 116,000 cars last year.

While U.S. trucks unit Freightliner is estimated to have added a loss of around 800 million euro to DaimlerChrysler's results, the group's third problem child, Mitsubishi, appears to be on the road to recovery.

The unit, in which DaimlerChrysler holds a 37% stake, expects to end its 2001 business year on March 31 with a positive operating result. Despite a high interest burden resulting from its debt, the unit also expected to present a break-even net result, officials in Tokyo said. Alongside massive cost-cutting measures, Mitsubishi is pinning its hopes on new models.