Chrysler expects third quarter losses

Josee Valcourt / The Detroit News - - Squeezed by bloated inventory, a high fleet mix and vehicle production cuts, Chrysler Group said this morning it expects to lose as much as $600 million during this year's third quarter.

The Auburn Hills-based automaker reported a 9 percent sales slump for its second quarter compared with the same quarter last year. The falling sales, along with other factors caused Chrysler's earnings to plummet to $65 million from $695 million in 2005.

Chrysler CEO Tom LaSorda said he expects production cuts at plants and reduce vehicle shipments to push the automaker's inventory below 600,000 units from its current 648,612 units. The excess inventory has pushed Chryslers' supply to 91 days, nearly 30 percent higher than the industry average.

"This is a strategy we need to do," LaSorda said. "It's something that the dealers are looking for with interest rates up."

The automaker has cut its factory shipments of new vehicles to dealerships, increased incentives and sold 34 percent of its vehicles in the second quarter to fleets, all of which cut into the company's bottom line.

As Chrysler rolls out eight new cars and trucks through the end of the year, LaSorda said he expects the automaker's deepened incentive offerings to decrease on Dodge, Jeep and Chrysler vehicles.

"We'll see them coming down based on these new launches," LaSorda said during a conference call this morning with analysts and the media.

LaSorda said the company's fleet penetration, which hovers at 34 percent, should fall as well by December.

Chrysler expects stronger earning results in the fourth quarter as a result of its new vehicle launches, which will total a record 10 for the year and includes the new Caliber hatchback available February.

Erich Merkle, an automotive analyst with Grand Rapids-based IRN Inc., projects Chrysler will see a modest lift in 2007 when it launches its new minivans.

"The minivan for Chrysler is like the F-series for Ford," he said.

Meanwhile, Chrysler's parent company, DaimlerChrysler AG reported an overall 11 percent earnings increase of $2.37 billion for the April-June period.

Last year, the German-based DaimlerChrysler earned $942 million for the quarter. Company officials attributed its surge to improved performance at its luxury division, The Mercedes Car Group, and eliminated German jobs.

Mercedes, which gave DaimlerChrysler an earnings boost, accounted for a 6 percent sales increase or 325,000 vehicles sold in the second quarter. The luxury division earned $1 billion versus $15 million the same quarter in 2005.

DaimlerChrysler's Truck Group and its Financial Services also improved operating profit, while the Smart unit sales were flat.

Separately, DaimlerChrysler Supervisory Board extended LaSorda's contract by years through April 30, 2012. His current contract expires next April.

LaSorda has been a member of the Board of Management since May 1, 2004.