UPDATE 2-DaimlerChrysler sees weaker U.S. car market in 2007

Tue Feb 27, 2007 11:49am ET

FRANKFURT, Feb 27 (Reuters) - DaimlerChrysler AG (DCXGn.DE: Quote, Profile , Research) expects the U.S. market for new cars and trucks to weaken this year, but insisted on Tuesday its hard-pressed Chrysler Group would use new models to fuel future growth.

Chrysler, which posted a 2006 operating loss of 1.12 billion euros ($1.48 billion) amid slumping demand for a product lineup that relied heavily on light trucks and sport utility vehicles, should benefit from a rejuvenated range of models, it said.

The division grouping Chrysler, Dodge and Jeep will roll out more than 20 new and 13 facelifted vehicles from 2007 to 2009, the world's fifth-biggest carmaker said in its annual report.

"Already at the beginning of 2007, the Chrysler Group had a fairly new model range compared with its competitors. So the right conditions have now been created on the supply side in order to increase unit sales and further improve the division's market position worldwide," it said.

It gave no new insights on its review of strategic options for Chrysler, which dented good results elsewhere in the group and triggered restructuring that will cut 13,000 jobs and annual manufacturing capacity by 400,000 units by 2009.

Global demand for cars would grow this year, but not as quickly as in 2006 and with most expansion coming from emerging markets, the company said.

It saw the U.S. market for passenger cars and commercial vehicles easing this year to 17.0 million vehicles from 17.1 million, while western Europe would be flat at best and the Japanese car market would grow slightly.

But its Mercedes Car Group premium division should at least match its record 1.25 million sales in 2006 as a second-half upturn offsets weaker first-half sales amid model changeovers for the Mercedes-Benz C-Class and Smart two-seater cars.

It repeated its forecast that Mercedes would generate a 2007 operating margin of at least 7 percent despite a weak first quarter, with profitability to mprove through 2009.

It reiterated it expected sharp downturns in the U.S. and Japanese heavy trucks markets this year while it sought to keep truck sales in western Europe around 2006 levels.

"We will also strengthen the division's competitive position with new products, which are expected to generate higher unit sales once again starting in...2008," it said.

"Based on the divisions's projections, DaimlerChrysler should achieve a significant increase in profitability in the planning period of 2007 through 2009," it said in its 2006 report.

"In the medium term we aim to achieve a return on net assets of at least 10 percent," it added, up from 6.9 percent in 2006.

Salary, in-kind benefits and bonuses to the group's top executives fell 41 percent in 2006 to 20.5 million euros. Chief Executive Dieter Zetsche made 5.1 million of this and Chrysler head Tom LaSorda 2.4 million.

Its share price fell 3.3 percent to 51.90 euros by 1612 GMT, when the DJ Stoxx European car sector index <.SXAP> was down 2.8 percent.

The company said it assumed global economic growth would slow in 2007 and the euro would stay mostly firm.

"Our planning is based on the assumption that compared with average exchange rates during 2006, the euro will appreciate against the dollar and the British pound, but will depreciate slightly against the Japanese yen," it said.

Its longest currency hedging contracts mature in 29 months.