Chrysler digs in to fight Asian rivals

David Gow in Brussels
Wednesday October 25, 2006
Guardian Unlimited

Chrysler, America's third-largest car company, is to start a savage cost-cutting programme and shift towards more fuel-efficient models to halt mounting losses that hit €1.16bn (£780m) in the third quarter.

Chrysler's losses, prompted by a 26% fall in sales and a price war, dragged down operating earnings at parent group DaimlerChrysler to €892m compared with €1.84bn in the same quarter a year ago, it was confirmed on Wednesday.

Daimler, which owns 15% of Airbus parent EADS, said delays to Airbus's A380 superjumbo would shave €200m off earnings this year, but reaffirmed its forecast of €5bn for the full year thanks to renewed vigour at Mercedes, its trucks division and financial services.

EADS delivered €247m profits to the cars group.

The plight of Chrysler, hailed last year as a turnaround success, underlines the scale of the problems faced by the US auto industry in the face of surging fuel prices and Asian competitors supplying smaller, greener cars.

The contrasting fortunes of Toyota and its US rivals were underlined today when the Japanese carmaker increased its profit forecasts and said it aimed to sell 9.8m vehicles around the world in 2008, an increase of 11% over two years.

The ambitious sales target raises the prospect that Toyota, already the world's most profitable carmaker, will soon overtake General Motors as the world's biggest manufacturer by sales.

Earlier this week, Ford announced losses of $5.8bn (£3.1bn), its worst results for 14 years, as analysts warned its full-year deficit could overtake last year's record $10.5bn at larger rival General Motors.

Ford is shedding 30,000 jobs and closing a dozen plants in north America.

But GM today signalled a substantial turnaround, after starting a programme to axe 35,000 jobs more than a year ago. It reported a net loss of $115m for the third quarter, a $1.6bn improvement on the same period in 2005. Without restructuring charges, it would have made a profit of $529m on record sales of $48.8bn.

GM has spurned a three-way alliance with Renault-Nissan, the Franco-Japanese pairing which has also held talks with Ford. But Alan Mulally, Ford's new chief executive, has signalled his determination to turn the group around on its own and to restore premium brands such as Jaguar to health.

Bodo Uebber, DaimlerChrysler's chief financial officer, pointedly refused to rule out a partnership for Chrysler or even a sell-off. The Stuttgart-based group has dispatched seven teams of managers to its US division to dissect the business and draw up measures to restore it to health.

These are likely to be announced early next year; Mr Uebber said Chrysler planned further cuts in output to reduce stocks at dealerships by the end of the year. "We're doing the analysis, then we'll discuss measures and draw conclusions," he said. Tom LaSorda, Chrysler's chief executive, who has launched eight fuel-efficient models this year and whose job is on the line, admitted more closures or capacity cuts could be on the way.

Mercedes, Daimler's premier brand, which has cut almost 10,000 jobs, increased its operating profits by 127% to €991m despite continuing losses at the Smart small car division. Mr Uebber, who cut the group's 2006 earnings forecast by €1bn last month, said the revised forecast would be met despite charges of €1.9bn.

Rick Wagoner, GM's chief executive, meanwhile, said his plans were on track. "Our third-quarter results again reflect significant progress in our fast-paced initiatives to turn around our business and create a company that is leaner, faster and positioned for long-term sustainable growth."

GM, which is reducing US costs by $9bn a year, said it lost $374m in north America and $103m in Europe, where it is cutting jobs and considering axing one-of-four plants producing the new Astra, including Ellesmere Port in Cheshire.

In contrast, Honda reported a 19% jump in first-half operating profits to €2.65bn on sales up 6.3% to 1.8bn units. The Japanese group, which is expanding its UK plant, expects a decline in full-year earnings on 2005 after second-quarter profits fell 4.3%, but an 11% jump in sales.

It has benefited from the yen's weakness against the dollar and demand for smaller cars.