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Daimler Reduces Profit Forecast

The automaker revises its expectations after projecting a $1.5-billion loss at Chrysler Group in the third quarter. Its shares plunge.

September 16, 2006|From Bloomberg News

German-American automaker DaimlerChrysler unexpectedly cut its full-year profit forecast Friday because of a projected $1.5-billion third-quarter loss at its U.S.-based Chrysler Group. Its shares suffered their biggest loss in more than three years.

For the full year, DaimlerChrysler expects to post an operating profit of about 5 billion euros ($6.3 billion), compared with an earlier forecast of more than 6 billion euros. Chrysler was previously expected to lose as much as 500 million euros in the third quarter.

DaimlerChrysler Chief Executive Dieter Zetsche, who took over in January, failed to anticipate higher fuel prices that propelled buyers to favor smaller cars over the pickup trucks and sport utility vehicles that dominated the U.S. model lineup.

Chrysler, like U.S. peers General Motors Corp. and Ford Motor Co., also is burdened by pension and healthcare costs for retirees and competition from Toyota Motor Corp. and other Asian automakers.

"Chrysler clearly operates in the broad mass-market sector of the automobile industry, and this territory is in the grip of a stranglehold of competition," said Stephen Pope, an analyst at financial services firm Cantor Fitzgerald.

Shares of DaimlerChrysler trading in Germany fell 5.6%, their biggest decline since April 10, 2003. Its U.S. shares fell $3.54, or 6.7%, to $49.36.

Zetsche headed Chrysler Group -- which consists of Chrysler, Dodge and Jeep -- from November 2000 until last September. Tom LaSorda, who was chief operating officer, succeeded him. At Chrysler, Zetsche eliminated 40,000 jobs and revamped the model lineup with vehicles such as the Chrysler 300 and Dodge Charger sedans.

Profit at Chrysler has never surpassed a peak of 5.05 billion euros in 1999, a year after its takeover by Daimler-Benz. The U.S. division reported losses in 2001 and 2003 as it reorganized. Last year, profit reached 1.53 billion euros, the most since 1999.

Chrysler's U.S. sales through August fell 9.7% from a year earlier as demand for large Dodge pickups, SUVs and minivans fell. Its only increases were for the 300 and the Charger sedans, the Chrysler PT Cruiser sports wagon and the Dodge Sprinter commercial van.

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