A $US1.48bn operating loss at Chrysler group in the third quarter has dragged down parent DaimlerChrysler’s operating profit to $1,132m from $2,332m.


The result came as no surprise as Chrysler has attracted a lot of attention in recent weeks for its swollen inventory of 2006 vehicles which will likely require large incentives to shift.


DC said Chrysler Group’s third quarter retail and fleet sales were off 14% to 635,300 vehicles while factory shipments were down to 504,400 vehicles from 663,400 last year.


Third quarter revenues, correspondingly, were off 23% to $12.1bn or 26% in euros.


Chrysler made an operating profit of $393m in the same quarter of last year.

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DC explained Chrysler’s operating loss as mainly the result of a decrease in worldwide factory unit sales, an unfavourable shift in product and market mix [read too many trucks and SUVs], and negative net pricing [incentives].


“These factors reflect a continuing difficult market environment in the United States as the Chrysler Group faced increased dealer inventory levels from the prior quarter, a shift in consumer demand toward smaller vehicles due to higher fuel prices, and increased interest rates,” it said.


Chrysler dealt with high dealer inventories during the quarter by reducing vehicle shipments with corresponding production adjustments. Factory shipments were 158,900 units lower than in the third quarter of last year.


Looking at the bigger picture, DC said the continuation of the very positive earnings trend at the Mercedes car group, the distinct increase in operating profit at the truck group as well as the financial services’ operating profit, which is above the high level of earnings in the prior-year quarter, only partially compensated for the loss at Chrysler.


Net income amounted to $686m in the third quarter (Q3 2005: $1,085m). Earnings per share amounted to $0.67, compared with $1.07 in the third quarter of 2005.


DaimlerChrysler sold 1.0m vehicles worldwide in the third quarter, 14% fewer year on year.


As a result, group revenues decreased from $48.4bn to $44.6bn. Adjusted for currency-translation effects, the decrease was 5%.


Mercedes car group sold 307,500 vehicles worldwide in the third quarter of this year, down from Q3 2005’s 310,900. Mercedes-Benz sales increased slightly to 282,800 vehicles from 282,100, primarily due to the success of the new models launched in 2005 and 2006. At smart, due to the focus on the Smart Fortwo, unit sales decreased, as expected, to 24,700 vehicles (Q3 2005: 28,800). Customer orders have been received for nearly all cars that will be produced prior to the model changeover next year. The divisions’s revenues increased by 8% to $17.1bn.


The group increased its operating profit by 127% to $1,257m primarily due to the efficiency improvements achieved in the context of the CORE cost-cut programme. Earnings were also favourably impacted by the improved model mix since the launch of the new S-class and M-/R-/GL-class. Exchange-rate effects had a negative impact on operating profit.


Staff reductions at Mercedes-Benz in the context of the CORE programme led to charges of $60m. Within the framework of the voluntary headcount reduction programme announced in September 2005, approximately 9,300 employees had signed severance agreements or had already left the company. The expenses originally planned for the restructuring of Smart were adjusted, resulting in a gain of $51m.


Unit sales by the truck group of 141,900 vehicles were 2% higher and that, plus a better model mix boosted revenues increased by 3% to $10.2bn.


The truck group posted an operating profit of $705m (Q3 2005: $449m) due to the higher unit sales, a high utilisation of capacity combined with strong productivity, and an improved model mix. In addition, further efficiency improvements were realised in the context of the global excellence programme, which more than compensated for the higher expenses incurred for new vehicle projects and the fulfilment of future emission regulations.


The financial services division improved operating profit to $565m, compared with $518m in the third quarter of last year.


New business of $16.0bn was 6% higher than in Q3 2005, while contract volume of $144.6bn was at the prior-year level. Adjusted for the effects of currency translation, the portfolio grew by 4%.


The van, bus, other segment posted a third quarter operating profit of $400m (Q3 2005: $481m), including expenses of $91m for the implementation of the new management model, mainly for the voluntary headcount reduction programme in administrative areas. The sale of real estate properties not required for operating purposes led to a gain of $109m in the third quarter.


The contribution to earnings from the European Aeronautic Defence and Space Company (EADS) was $313m, slightly below the result of $325m in the prior-year quarter, due mainly less favourable currency-hedging rates. The delays with the delivery of the Airbus A380 did not affect the profit contribution from EADS to DaimlerChrysler in the third quarter, as the results of EADS are consolidated with a three-month time lag.


Looking ahead, DaimlerChrysler expects a slight decrease in worldwide demand for automobiles in the fourth quarter and thus slower market growth than in Q4 2005. For full-year 2006, the company anticipates market growth of around 3% (2005: 4%).


Unit sales in 2006 are expected to be lower than in the previous year (4.8m units) while revenues should be slightly higher than in 2005 ($190bn).


On September 15, DaimlerChrysler reduced the group’s operating-profit target for 2006 to around $6.3bn. Although the company now has to assume that the profit contribution from EADS will be $0.3bn lower than originally anticipated because of the delayed delivery of the A380, DaimlerChrysler is maintaining this earnings target due to what it calls “very positive business developments in the divisions Mercedes car and truck groups and financial services”.