STUTTGART, Germany (Bloomberg) — DaimlerChrysler AG's shares rose as much as 4.9 percent as investors said the company is trying to grapple with problems at the Chrysler unit, which is expected to suffer a fourth-quarter loss.
The U.S. unit may lose about $1 billion in the fourth quarter, the Wall Street Journal reported, calculating the figure on the basis of an interview in which DaimlerChrysler Chief Executive Juergen Schrempp that Chrysler will "see a very low profit for the year."
A $1 billion fourth-quarter Chrysler loss would be higher than the $352 million that several analysts have estimated, though they expect Chrysler-related charges in the fourth and first quarter. The company is working on a plan to return to profitability by slashing the development budget for new vehicles and replacing the head of the Chrysler unit.
"If bad news doesn't send the stock lower, it may be a sign that they have bottomed out," said Peter Winzinger, who helps manage $11.3 billion at Allfonds BKG in Munich. "I'm waiting for more such evidence though" before buying the stock. He said he currently has no DaimlerChrysler stock in his fund.
DaimlerChrysler shares rose as much as 2.25 euros to 47.9 euros in Frankfurt. The company's German shares have lost 39 percent of their value while the U.S. shares have lost 50 percent.
Winzinger said the management of Stuttgart, Germany-based DaimlerChrysler is working to turn around the U.S. unit, which he described as a "Herculean job."
"A lot has been done already and they are working under high pressure to achieve more," he said. "You can't expect them to turn the business around all of a sudden."
DaimlerChrysler may cut its five-year plan for developing new U.S. vehicles by 25 percent to $36 billion in an effort to bring Chrysler back to profitability, a person familiar with the company said last week. Schrempp last month sent a team of German executives led by Dieter Zetsche, former head of commercial trucks, to fix the U.S. unit.
The company said Friday that Chrysler's November U.S. auto sales fell 5.5 percent and that it could close seven of 12 North American plants for at least part of the next three weeks to help reduce bloating inventories.
"By cutting production, DaimlerChrysler will be taking capacity out of the market, which means they may finally be able to get a handle on these incentives," said Erik Burgold, an auto analyst at BHF-Bank AG, who rates the shares "hold." "The market is showing optimism that the company might manage the turnaround."
Growing Losses
Six months ago, the company predicted that Chrysler will earn a profit of $2 billion in 2000, then it lost $512 million in the third quarter.
A DaimlerChrysler spokesman, Michael Pfister, termed the $1 billion loss estimated by the Wall Street Journal as "speculation," though he said that Schrempp did say Chrysler's profit would be "very low" for the full year.
"What is clear is that there will be an extended period of tough news from Chrysler," said John Lawson, a Schroder Salomon Smith Barney analyst in London.
In the first two quarters, Chrysler earned a total of 2.51 billion euros of operating profit, or $2.2 billion at the current exchange rate, and in the third quarter it lost $512 million. Last month, the company said Chrysler's profit would be less than it previously projected.
DaimlerChrysler, the world's fifth-largest automaker, is fighting a lawsuit filed by shareholder Kirk Kerkorian demanding the breakup of the company. Kerkorian, DaimlerChrysler's third-largest shareholder, said Schrempp misrepresented the takeover as a "merger of equals."
The company has hired investment bank J.P. Morgan to fight Kerkorian's suit, the Journal said. Pfister wouldn't comment on the hiring, though he said the company maintains that the lawsuit is without merit.
In the interview, Schrempp defended Daimler-Benz AG's $35 billion takeover of Chrysler Corp. in 1998. He's likely to send a letter to shareholders saying he's working hard to fix Chrysler and that other parts of DaimlerChrysler are healthy.
"You cannot always select the timing as it suits you" Schrempp said. "If you do that, and sit back and say 'I'll wait another year or two,' somebody else will act and you are defeated."
He told the newspaper that the company plans to save money by cutting the number of powertrain components—engines, transmissions and axles — by 39 percent, to 89 from 146.