DaimlerChrysler Earns $1.2 Billion in Q3
Chrysler adds profit, Benz and Smart draw it down.
TheCarConnection.com

DaimlerChrysler AG posted a $1.18 billion profit for the third quarter as sales climbed two percent to $43.1 billion. However, the German-American automaker also disclosed that the Mercedes-Benz Group faces tough sledding in months to come.

One of the problems at Mercedes is a lack of new models after a brisk few years of introductions. Manfred Gentz, DaimlerChrysler's chief financial officer, said Thursday that the company has moved back the introduction of the new M-Class all-purpose vehicle, making 2006 a lean year for the brand. The delay will keep the Mercedes-Benz Group short of new products, but at the same time it is spending heavily to ensure the quality of its vehicles, Gentz said during a conference call with analysts.

DaimlerChrysler also in the midst of a careful review of its money-losing Smart unit, Gentz said. He declined to rule out the possibility that DaimlerChrysler's board of management would close up Smart, which was organized in the late mid-1990s to give Mercedes-Benz an entry in the small-car market. "We have a lot of brand equity in Smart," Gentz said. But at the same time, the Smart unit continues to lose money. "Smart is very well accepted as brand but we have to determine how we can run it as a profitable business," Gentz said during a conference call with analysts. Earlier this year, DaimlerChrysler officials had predicted that Smart would break even this year. Instead, Smart will wind up losing money this year, Gentz confirmed.

The fate of Smart is only one of the issues facing the Mercedes-Benz Group, Gentz said. Mercedes-Benz sales dropped four percent during the third quarter and sales in Germany slipped 13 percent in the third quarter. In addition, Mercedes-Benz loyalists in Germany are purchasing less expensive vehicles, Gentz noted. As sales slid, Mercedes-Benz Group's operating profit also dropped 62 percent during the third quarter and is now down 30 percent through the first nine months of 2004.

The problems are expected to persist through the fourth quarter and into next year. "The operating profit (from Mercedes-Benz) will be substantially lower than last year as a result of a changed model mix, higher marketing expenditure, and lower unit sales of some models at Smart," Gentz said.

Meanwhile, the Chrysler Group posted its fifth consecutive quarterly operating profit. The Chrysler Group's operating profit increased 48 percent to $269 million during the third quarter, Gentz said. Dieter Zetsche, Chrysler Group chief executive, said the Chrysler Group's focus on cost improvement and the success of new products contributed to the third-quarter profit. "On the strength of the Chrysler Group's new products, I expect our momentum in the market to continue through the end of this year," Zetsche added.

Gentz noted the introduction of the M-Class is being delayed to give engineers a chance to cope with potential quality problems. The new M-Class, which originally was supposed to go on sale in the spring, will not go on sale until next summer now, in order to ensure the quality of the new vehicle, Gentz said. Other DaimlerChrysler officials said the delays will be relatively short. "We're talking weeks, not months," said one company official. Gentz, however, noted the Mercedes-Benz had been counting on the extra revenue from the M-Class and the delay will have an impact on earnings.

Instead the Mercedes-Benz Group will have to count on the sales of vehicles such as the C-Class sedans, which carry smaller profit margins. Mercedes-Benz also is spending a large sum on improving quality, Gentz said, declining to quantify the spending. But he said it already has had a significant impact on the vehicles sold by the Mercedes-Benz Group. Warranty costs have skyrocketed as Mercedes-Benz has scrambled to satisfy customers, he added. "The positive story is, we can say and prove that vehicles that left our factory a year ago, there were almost no problems and the quality is significantly better than some of the vehicles we delivered in earlier years," Gentz said. "The bulk of the problem will be resolved in 2004 and 2005." The aftershocks from the quality problems will linger until 2006, Gentz said.

Source: The Car Connection

redriderbob

 

Thats one reason why I love Mercedes. You can always depend on it being reliable and built greatly...not to mention the looks, ride comfort, extras, etc also



-Matt-

 

one fo many reasons i disagreed with teh takeover

 

This has been the case many times since the merger. The Germans are riding Chryslers back to keep the rest afloat. As long as Chrysler can benefit from the technology exchange, maybe it's worth it.

 

it might be but teh thing that really pissed me off was how teh power was split 42/58 for teh germans. what teh hell is that, the rest of teh world bows down to us...

 

Merger? What merger, the hostile takeover is more like it. All but three members of the board are daimler. There is no more chrysler in daimlerchrysler, we are just a division.

Joe