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Competition bites Chrysler
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December 18, 2000: 9:27 a.m. ET
Daimler sees $450 million operating profit at U.S. unit as competition bites
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LONDON (CNNfn) - DaimlerChrysler AG said Monday it expected Chrysler to make 500 million euros ($450 million) operating profit in 2000, revealing the extent of likely fourth-quarter losses.
The forecast implies that the troubled U.S. unit will fall into the red to the tune of about $1.25 billion in the year's last three months, compared to a loss of $512 million in the third quarter.
The estimate highlights the speed of the decline since October, when the German company revealed Chrysler's third-quarter loss but said the unit should return to profit in the fourth quarter and estimated an annual operating profit of $1.9 billion.
The company blamed the two quarters of losses on an increasingly competitive U.S. market and the launch of too many products in a short time.
Referring to the result for DaimlerChrysler as a whole, the Stuttgart, Germany-based automaker said it expects to announce an operating profit of between  9.5 billion and 10 billion, including one-time gains of about 4.5 billion.
DaimlerChrysler last month fired Chrysler head James Holden and other top executives, and parachuted in Dieter Zetsche as the division's new chief executive as it moved to regain control of its loss making investment.
Chrysler has faced tough competition in the U.S. market, where it increased incentives and rebates in a bid to maintain market share. The company has also seen increased expenses relating to the introduction of models such as a new minivan, the PT Cruiser, the Dodge Stratus and the Chrysler Sebring.
"New products entail significant up-front costs, both in terms of marketing spend on the new product and the need to offer discounts on the old product to clear stock levels," the company said.
Chrysler has been "hurt by the unusually fierce nature of competition" in profitable niche markets. Rivals hurt Chrysler by targeting especially profitable market segments such as minivans, sport/utility vehicles and pickup trucks, the company said.
The German automaker launched a scathing attack on the former management of its U.S. business, saying "Chrysler did not adjust its cost structure sufficiently to take into account the changed conditions in the market."
The new management has cut production to reduce stockpiles and expects to announce a restructuring plan on Feb. 26 when it publishes full-year earnings.
DaimlerChrysler warned that competitive pressure would intensify and its financial performance, particularly in the U.S., would reflect this.
Shares in DaimlerChrysler skidded 1.9 percent to 47.10 in afternoon trade in Frankfurt. 
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