DETROIT — Chrysler Corp. reported its third straight quarterly profit of more than $1 billion--a sevenfold increase from a year ago--but Friday's upbeat news was clouded by threats of higher interest rates and an emerging view that auto industry profits might be nearing a peak.
These worries were expressed by bearish investors who pushed Chrysler's stock price down sharply even though the company's second-quarter earnings of $1.04 billion are the third-best quarterly results in its history.
"It was a very solid performance, but it was overshadowed by worry about the economy and future earnings," said Nicholas Loboccaro, analyst for Bear Stearns & Co. in New York.
The earnings, equal to $2.77 a share, are on revenue of $15.8 billion for the quarter ended June 30. A year ago, the No. 3 auto maker earned $135 million, or 35 cents a share, on sales of $12.5 billion.
The performance was slightly above Wall Street expectations, but nervous investors sold Chrysler stock nevertheless. It closed down $1.25 at $56.25 in New York Stock Exchange trading Friday.
General Motors Corp. is expected Tuesday to report improved earnings of more than $2 billion as a result of recovered production from a costly strike earlier this year. On Wednesday, Ford Motor Co. is likely to report relatively flat profits of about $1.5 billion, reflecting costs related to some new model introductions.
Auto sales, a major gauge of the economy's health, were surprisingly strong in the first six months of 1996. But they could be hurt by any increase in interest rates, which would raise the cost of auto loans and leases to consumers and make dealers skittish about ordering cars.
Profit margins could be further squeezed by increasing competition in trucks--particularly high-profit minivans, sport-utility vehicles and large pickups--even as demand for some of those pricey vehicles may finally be slackening.
For such reasons, some experts say the auto industry could be nearing a cyclical peak.
Chrysler, however, argues that projections of a dive in auto sales are overblown. To underscore its point, the company Friday increased its estimate for 1996 car and truck sales by 100,000 vehicles to 15.2 million.
The economy should continue on a course of slow growth into next year, said Chrysler economist Van Bussmann. He said he sees no sign of inflation and does not expect the Federal Reserve Board to raise interest rates any time soon.
Although sales of some categories of trucks have begun to cool from their earlier torrid pace, Chrysler--by far the most heavily dependent of the Big Three on truck sales--projects that truck demand will continue to grow among affluent baby boomers.
Trucks, including Jeeps, minivans and pickup trucks, account for two-thirds of Chrysler's sales. But the auto maker insists it is not overly concerned with the proliferation of new rival models.
"We continue to break bottlenecks in production and sell everything we make," said James Holden, vice president of sales and marketing.
A measure of the popularity of Chrysler's products is the company's ability to keep rebates and other incentives in check. Its average rebate was $625 per vehicle for the second quarter, down from $1,035 a year ago. Many of its top-selling models, such as its minivans, carry no rebates.
In contrast, Ford recently raised its incentives on a broad range of vehicles. Its Windstar and Mercury Villager minivans offer $1,500 rebates, and the new Taurus sedan carries a $1,000 cash-back incentive.
Chrysler's market share has risen to 16.7%, up 2 percentage points since the beginning of the year. The auto maker says it expects to hold most of the gain this year.
The company reported $7.5 billion in cash reserves and said it has spent more than $1.1 billion to repurchase its stock this year. It plans to buy an additional $900 million worth this year.
The second-quarter earnings include a $101-million gain on the sale of two defense units and a $65-million charge for a write-down of Thrifty Rent-A-Car System, which it hopes to sell this year. Year-ago earnings included a $232-million charge related to production changes at one of its factories.
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Although Chrysler's earnings topped $1 billion for the third consecutive quarter, analysts caution that the auto industry may be in for rocky times. A look at the No. 3 auto maker's earnings since the first quarter of 1994, in billions.
Sources: Bloomberg Business News, Times Reports
Researched by JENNIFER OLDHAM / Los Angeles Times