DaimlerChrysler, the world’s second largest producer of luxury cars and manufacturer of high quality Mercedes window motors has announced recently that the first quarter profit that they obtain is more than doubled and Mercedes has helped a lot in offsetting the loss at the US Chrysler Group which is being sold.
The net income of DaimlerChrysler has increase to 1.97 billion euros ($2.67 billion), or 1.89 euros a share from 781 million euros or 77 cents explained Chief Financial Officer Bodo Uebber at a recently held conference call. Revenue also decline by 6 percent to 35.4 billion euros. The company gain from the sale of stake in the parent of Airbus SAS.
Chief Executive Officer Dieter Zetche is further attempting to reduce the risk to profit growth by finally selling Chrysler AG to Cerberus Capital Management LLC. Zetsche is expecting for more than 7 percent profit increase for this year at Mercedes, which has introduced new and expensive vehicles like the S-class sedan. DaimlerChrysler is also expecting to keep the truck unit profitable.
The shares increase by 1.84 euros or 3 percent to 63.54 euros valuing the company at 65.5 billion euros. The stock has also increased by 29 percent since February 14 when Zetsche said that “all options’ were open for Chrysler.
The Separation
DaimlerChrysler has finally announced that it would be ending its nine-year ownership of the money losing Chrysler and would be handing control to Cerberus including the $19 billion retirement liabilities for US employees. Ron Gettelfinger, the President of the United Auto Workers have welcomed the deal and promised to help in the recovery of the ailing US carmaker.
It can be remembered that Chrysler has posted a loss in the quarter amounting to 1.49 billion euros from a profit of 641 million euros. The loss includes reorganization expenses of 941 million euros. DaimlerChrysler also shared 120 million euros to assist “troubled suppliers” and added 54 million euros to cut administration and management jobs.
In addition, existing projects with Mercedes-Benz will also continue, providing opportunities to share development costs. There will also be a joint council consisting of management board representatives that be formed to discuss business projects. The deal is expected to be completed in the third quarter. The Pension as well as the health-care costs associated with Chrysler will be taken over by the new company.
Why sell Chrysler?
The merger was not working from the very beginning as a matter of fact DaimlerChrysler’s stock peaked five months after the merger and never recovered since then. Chrysler lost $680 million last year and surrendered market share to Toyota and was relying too much on the sluggish North American market. Zetsche has failed to keep Chrysler profitable after the reorganization which he himself has started.
Since 1998 Chrysler has posted annual profits of only $5 billion while its losses escalate infuriating investors further. The latest recorded loss by Chrysler marks a third descent into losses since the last time that Lee Iacocca saved the automaker from bankruptcy 25 years ago. To keep itself afloat Chrysler has reduced its workforce by 13,000 and closed one of its factories. It has also unveiled new models in the hope to offset the decline in sales last 2006.
Chrysler CEO Tom LaSorda has again vowed to get Chrysler back to profitability since now he has all the time to really focus on the recovery of the automaker without the distractions from analysts and the need to submit quarterly reports, according to Cerberus Chairman John Snow in an interview just recently.
The buck stops here
Uwe Treckman, an equity strategist at Dresdner Bank said, "Once Chrysler has been sold the cash-flow to sales-ratio will improve significantly."
The Mercedes Car Group will also implement a profit recovery plan that will include Smart, Mercedes-Benz and Maybach brands especially now that Chrysler will finally separate from them. The growing demand for heavy trucks in Europe and Asia are also helping to offset the loss Chrysler. Mercedes-Benz earnings before interest and tax were 792 million euros in the quarter from a loss of 735 million euros a year earlier.
For the first quarter, Mercedes-Benz Car Group sales declined by 2.8 percent trailing behind larger rivals like the Bayerische Motoren Werke AG and Volkswagen AG’s Audi luxury car business. Despite the decline, Mercedes-Benz is still able to come up with remarkable sales figures for its most expensive vehicles like the S-Class full-sized sedan and the GL-Class large sport utility vehicle which has given the brand more profit compared to its other models.
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