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Business

Chrysler Gets Off to Flying Start in 2002

DaimlerChrysler's first-quarter figures beat all forecasts. A sterling performance by its Mercedes-Benz unit added to the luster as the U.S. arm Chrysler returned to profit.

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Mercedes-Benz's operating profit accounts for more than 60 % of the group total.

DaimlerChrysler AG on Thursday reported first-quarter figures that beat all forecasts as a sterling performance by its Mercedes-Benz unit added to the luster from the U.S. Chrysler arm's widely anticipated return to profit, but still the autos giant was cautious when it came to its full-year outlook.

DaimlerChrysler reported an adjusted operating profit of 1.02 billion euro, well ahead of the 850 million euro forecast by most analysts. In the first quarter of 2001, the group had seen an operating loss of 610 million euro.

"The first quarter went better than planned," said DaimlerChrysler's chief financial officer, Manfred Gentz. And analysts echoed his sentiment. "The outlook has become more positive," said Georg Stürzer at HypoVereinsbank. Gentz added that the group was now able to be more relaxed about its financial situation. He said the sale of its remaining shares in Debis Systemhaus, the IT services company, and of a financial services arm had brought a total of over 5 billion euro into the group's coffers.

When it came to the breakdown of results by unit, all eyes were on Chrysler, and the U.S. arm did not disappoint. It marked its return to an operating profit after 6 consecutive quarters of losses in fine style, with a figure of no less than 127 million euro, up from an operating loss of 1.4 billion euro in the year-ago quarter.

But a charge of 314 million euro for restructuring costs pushed its net result into negative terrain, and since it has 1 billion euro earmarked for restructuring in 2002, similar charges will weigh on its results for the rest of the year.

Still, CFO Gentz stressed that Chrysler would be breaking even for the full year.

DaimlerChrysler, in its statement, said the unit "may do better than its targeted breakeven, and could achieve positive earnings for the year." Gentz said Chrysler's strong first-quarter performance was not just due to cost-cutting measures. First-quarter deliveries to dealers had risen 7% on the year, even though unit sales had continued to decline. He explained this paradox by pointing to an upturn in dealers' confidence in the make.

And Chrysler is seeing gains in its market share, which stood at 13.7% in the first quarter, marking a further recovery from its autumn 2001 nadir of 12.3%.

But these gains are being made at a cost.

The price war among the big U.S. car makers shows no sign of dying down, and according to a study by Merrill Lynch, Chrysler is now the most generous discounter on the market, ahead of Ford and General Motors.

DaimlerChrysler's other problem child, its commercial vehicles division, posted a loss of 85 million euro.

But the group stressed that despite the problems at its US arm, Freightliner, and despite the weakness of the European trucks market right now, the division would post a profit for the full year.

Meanwhile, the group's "other activities", which include its interests in aerospace and defense firm EADS and Mitsubishi Motors Corp, posted a 136% rise in operating profit to 158 million euro. For the full year, DaimlerChrysler is expecting its first ever profit on the 37% stake in the Japanese company.

As usual, though, Mercedes-Benz, DaimlerChrysler's luxury-car unit, was the hero of the day. Its operating profit, at 653 million euro, accounted for more than 60% of the group total.

Despite high costs arising from two key new models – the new E-class and the new CLK coupé – this was only just short of the year-ago figure. And Mercedes unit sales were more or less unchanged, despite the E-class model change and despite the market weakness.

For the full year, DaimlerChrysler expects Mercedes-Benz to match the strong sales and profit figures it turned in last year. But at group level, Gentz said he thought it premature to start revising up the full-year outlook, despite the flying start.

In January, Chief Executive Jürgen Schrempp had revised down previous estimates to forecast operating earnings of "clearly more than" 2.6 billion euro.

Strong though DaimlerChrysler's first-quarter performance was, it failed to generate sufficient enthusiasm on the markets to spare the group's share the effects of the generally negative trend prevailing on the markets on Thursday. It closed down 3.25% at 50.93 euro.

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