DaimlerChrysler vows to press ahead with Chrysler turnaround

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Posted 8:10AM on Wednesday, February 20, 2002

SINDELFINGEN, Germany - DaimlerChrysler said Wednesday it will stick by plans to turn around its loss-making U.S. arm Chrysler this year despite a gloomy auto market outlook, saying the drive is running ahead of schedule. The U.S.-German automaker -- the world's fifth-biggest -- reported a 2.18 billion euro ($1.9 billion) operating loss in 2001 for its Chrysler division, beating the company's target of between 2.2 and 2.6 billion euros ($1.9 billion to $2.3 billion) in losses. The company said it will press ahead with its plan to return Chrysler to break-even in 2002, even while revising its estimate for total U.S. auto sales this year downward by 1 million to 15 million. "Due to unfavorable economic conditions, the assumptions for 2002 underpinning Chrysler Group's turnaround plan have ... been adjusted," the company said in a statement. "In order to break even in 2002 in the face of weaker market conditions, Chrysler Group has intensified and accelerated some aspects of the turnaround plan." The company squeezed 3.3 billion euros ($2.9 billion) in cost savings from Chrysler in 2001, better than its 3.1 billion euro ($2.7 billion) target, chief executive Juergen Schrempp said at the company's annual earnings press conference. He said Chrysler "had done a tremendous good job" and that there was "a completely different atmosphere than 12 months ago." DaimlerChrysler reported a 39 million euro ($35 million) net loss in the fourth quarter, compared to a 1.4 billion euro net profit in the same quarter the year before. But operating profit, excluding one-time gains and losses, was up in the quarter to 564 million euros ($502 million), compared to a loss of 405 million euros in 2001. Chrysler showed a 359 million euro ($320 million) fourth-quarter operating loss, compared to a 1.4 billion euro loss a year earlier, DaimlerChrysler said. DaimlerChrysler has been battered by the fallout of the Sept. 11 terror attacks and by brutal price-cutting on the crucial U.S. auto market. It also has incurred heavy charges to restructure Chrysler and U.S.-based truck and bus maker Freightliner. Schrempp's three-year rescue plan for Chrysler calls for the U.S. unit to break even in 2002 and make a profit in 2003. To achieve those targets, the company would cut 26,000 jobs, or about one-fifth of the Chrysler work force. The company said its plan to return Chrysler to profit actually was ahead of schedule. DaimlerChrysler shares were up 1.6 percent at 41.40 euros ($36.20) on the Frankfurt stock exchange after Wednesday's announcement. Chrysler's problems were only partly stemmed by the strong Mercedes division, which recorded 2001 operating profits of 2.96 billion euros ($2.6 billion), up 3 percent from 2.87 billion euros in 2000. The struggling commercial vehicles unit, including Freightliner, turned an operating profit of 44 million euros ($39 million). Analysts had been hoping the company would clarify the outlook for 2002 at Wednesday's event. On Feb. 6, the automaker warned its 2002 goal of 5.5 billion euros to 6.5 billion euros ($4.7 billion to $5.6 billion) in adjusted operating profit wouldn't be met until "slightly later" due to the slow economy. The reduced assumptions for U.S. sales went a long way toward explaining the profit warning, said analyst Georg Stuerzer at HVB bank in Munich. "The problem seems to be that the company has made very conservative market assumptions," said Stuerzer. "Despite this, they are committed to their breakeven target at Chrysler." DaimlerChrysler has already announced a 662 million euro ($569 million) net loss for last year, compared with a net profit of 7.89 billion euros ($6.86 billion) in 2000. Its operating profit barely made the lower end of DaimlerChrysler's target range of 1.2 to 1.7 billion euros ($1 billion to $1.5 billion).