DaimlerChrysler May Say Profit Rose After Job Cuts at Mercedes

July 26 (Bloomberg) -- DaimlerChrysler AG, the world's fifth-largest carmaker, may say second-quarter profit rose after Chief Executive Officer Dieter Zetsche cut 8,500 jobs at Mercedes-Benz and sales of vehicles increased.

Net income probably climbed to 787 million euros ($994 million) from 737 million euros a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg News. Sales likely rose 6.7 percent to 41 billion euros, the survey showed. The Stuttgart, Germany-based company reports results tomorrow.

Mercedes, which last year lost its position as the world's largest maker of luxury cars to Bayerische Motoren Werke AG, is eliminating positions and improving sales of M-Class sport- utility vehicles and S-Class sedans. The Chrysler unit, hampered by aging, gas-guzzling models such as Dakota trucks, has boosted incentives to $4,000 a vehicle as demand plunges.

``Mercedes is coming back, management is doing the work that needs to be done,'' said Arndt Ellinghorst, an analyst at Dresdner Kleinwort who has a ``buy'' rating on the stock. Still, ``it's not unrealistic that Chrysler could report a loss this year. It wouldn't even take an earthquake.''
Shares of DaimlerChrysler have declined 10 percent this year, making them the fourth-worst performer on Germany's benchmark DAX index. Shares of BMW have gained 5 percent.

The spread on DaimlerChrysler's 4.375 percent euro- denominated bond due in March 2013 widened in the second quarter to 93 basis points from 76 basis points, according to RBC Capital, an indication that investors view the company's debt as riskier. The debt is rated BBB by Standard & Poor's, two steps above junk.

DaimlerChrysler spokesman Thomas Froehlich said the company doesn't comment on earnings before they are released.

Job Cuts
Zetsche, who remained head of Mercedes when he became chief of DaimlerChrysler in January, is spending 3 billion euros to cut a total of 15,000 jobs. He's also moving DaimlerChrysler's headquarters from an office building to a factory outside Stuttgart and rolling out new models.

BMW, based in Munich, has introduced models such as the X3 SUV and the 1-Series compact car. BMW is expected to report a 2.9 percent increase in second-quarter net income Aug. 2, according to the median estimate of 10 analysts surveyed by Bloomberg.

Job cuts at Mercedes and the remaining cost to reorganize the Smart mini-car business may result in a charge of 196 million euros in the quarter, according to Georg Stuerzer, an analyst at HVB Group in Munich.

Mercedes Car Group probably will report earnings before interest and tax of 460.5 million euros from 12 million a year earlier, according to the analysts. Chrysler's profit fell to 113 million euros from 544 million euros, the survey showed.

Chrysler Models
Chrysler CEO Tom Lasorda is introducing 10 new models this year, including the Dodge Caliber compact car, as well as expanding Dodge internationally, demanding lower prices from suppliers and boosting productivity.

The company is suffering from a range of old vehicles and will recover again as soon as new models and engines, including more efficient four-cylinder versions, reach the market, said Dresdner Kleinwort's Ellinghorst.

All of the division's models except the PT Cruiser, Dodge Charger and the Sprinter commercial van declined in the first half. Chrysler's U.S. market share fell to 13.5 percent at the end of the first half from 16.1 percent in 1998. Chrysler is now the fourth-largest U.S. carmaker after losing the No. 3 spot to Toyota Motor Corp.

``Chrysler has become a problem child,'' said Juergen Pieper, an analyst at Metzler Investment which oversees the equivalent of $18 billion in assets, including DaimlerChrysler stock. ``It has become difficult for them in the U.S.''

More Discounts
Lasorda revived last summer's ``employee discount'' promotion for July and added cash incentives of up to $3,500 per vehicle. The company also is counting on a $100 million ad campaign featuring Zetsche as ``Dr. Z,'' who explains the features of various Chrysler products and the brand's German engineering, to promote the offer.

Chrysler has the highest incentives in the industry. General Motors Corp. and Ford Motor Co., which offer rebates almost as high, are struggling through reorganizations as they lose market share to Toyota and Honda Motor Co. GM is in talks with Carlos Ghosn about a partnership that would involve both Renault SA and Nissan Motor Co. buying a stake in the world's biggest carmaker.

``The situation of the U.S. business is quite difficult,'' said Philippe Barrier, an analyst at Societe Generale in Paris who has a ``neutral'' rating on the stock. ``Chrysler's situation will be watched carefully and the reaction will depend on the results level and the U.S. environment.''
Daimler Takeover

DaimlerChrysler was created by Daimler-Benz AG's $36 billion takeover of Chrysler Corp. in 1998. Chrysler then accounted for more than half of the company's profit, compared with 6.6 percent in the last quarter, the survey shows.

``This year's second-quarter results are highly significant because the earnings decline expected at Chrysler will probably lead to a revision of estimates,'' said HVB Group's Georg Stuerzer, who has a ``buy'' rating.

Profit at Chrysler has never surpassed a peak of 5.05 billion euros in 1999 a year after the takeover. The U.S. division reported losses in 2001 and 2003 as it reorganized and spent money on new models such as the 300 and Crossfire. Last year, profit reached 1.53 billion euros, the most since 1999.

Zetsche, is also trying to revamp the 8-year-old Smart brand, which has never posted a profit. A reorganization of Smart, which is part of the Mercedes Car Group, will cost 1 billion euros this year on top of 1.1 billion euros in 2005.

Zetsche's salary this year will be 1.5 million euros, with a bonus of as much as 2.25 million euros as long as targets are reached. The company plans to release pay details of individual management board members as of this year.