Embattled Chrysler returned to operating profit in first quarter

Posted 8:34AM on Wednesday 10th April 2002 ( 23 years ago )

FRANKFURT, Germany - DaimlerChrysler has succeeded in its 18-month-effort to return struggling U.S. arm Chrysler to profitability, DaimlerChrysler chief executive Juergen Schrempp said Wednesday. Schrempp has endured sharp shareholder criticism for taking Daimler-Benz into a 1998 merger with the U.S. automaker in an attempt to forge a global auto giant. Turning around Chrysler would be a big step toward justifying his grand strategy, which also saw the company take a 37 percent stake in Mitsubishi of Japan. It also would open another chapter in Chrysler's up-and-down story, which has included a 1980 U.S. government bailout to save it from bankruptcy and profits in the 1980s and 1990s under the charismatic Lee Iacocca. Then came the merger and the plunge back into the red as Chrysler was battered by slowing sales, a price war with rivals General Motors and Ford, and turmoil as top managers left. Schrempp didn't offer concrete numbers, but said at the company's shareholders' meeting in Berlin that "based on the company's most current information, after six consecutive negative quarters, the Chrysler Group will report slightly positive operating results for the first quarter of 2002." The first quarter ended March 31, but detailed earnings won't be announced until the end of April. Operating results ignore financial items such as interest and taxes, and the cost of Chrysler's ongoing three year restructuring. But many auto analysts look to operating figure as the best clue to the health of a company's core business. Chrysler head Dieter Zetsche, a former Mercedes-Benz executive, has been leading a cost-cutting campaign at the U.S. group, headquartered in Auburn Hills, Michigan. Chrysler lost $4.7 billion last year including the costs of the restructuring, which means closing six plants and eliminating 26,000 jobs, about 20 percent of Chrysler's work force. Schrempp also said DaimlerChrysler as a whole was sticking with its earlier forecast that the company would more than double its 2001 operating profit of $1.1 billion in 2002. Including one-time costs such as the restructuring expenses, DaimlerChrysler posted a $1.1 billion loss last year. Schrempp also reiterated that the carmaker wouldn't reach an earlier target of operating profits between $4.8 billion and $5.2 billion this year. "Due to projected economic trends, we will only be able to achieve these targets at a somewhat later date," he said. Some securities analysts have expressed frustration at Schrempp's pronouncements on future earnings, saying they are too vague. Schrempp also said "a positive trend is beginning to emerge" at the commercial vehicles division, which includes the Mercedes-Benz truck making operations in Europe and the Portland, Oregon-based truck and bus maker Freightliner. The division has been battered by the recession and the company is in the middle of another turnaround program at Freightliner. Financial markets reacted coolly to Schrempp's comments, with the shares little changed at $44.09. Krista Kepler, an analyst at Merck Finck and Co. in Munich said it was too early to bet on a strong year for the automaker. "If they run into trouble it'll be in the third quarter," a typically weak time for auto sales, said Kepler, whose operating forecast for Chrysler for the year is "around break even." Net profit will still be weighed down by restructuring costs, she said. Schrempp again faced awkward questions from small shareholder groups at the Berlin meeting. Some are angered by a cut in their dividend while others planned to confront executives over the company's involvement in armaments manufacturing.

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