Chrysler group losses force DCX to issue profit warning

The soaring losses at DaimlerChrysler AG’s unit in North America compelled the automaker to issue a profit warning on Friday. Due to losses at its Chrysler Group the parent company slashed its 2006 operating profit forecast by around 1 billion euros, or $1.4 billion, yesterday, sending its shares slipping more than 5 percent lower.

Stuttgart, Germany based prominent automobile and truck manufacturer said it now expects a euro1.2 billion ($1.52 billion) loss at Chrysler in third-quarter, ending Sept. 30, which is more than twice the amount predicted. Chrysler Group had earlier announced an anticipated operating loss of up to euro 0.5 billion ($0.6 billion) in the third quarter.

DaimlerChrysler (stock exchange abbreviation DCX) lowered its operating profit forecast for full-year 2006 to nearly euro 5 billion ($6.4 billion) from earlier forecast of about $7.6 billion. This figure contains charges for the implementation of the new management model (euro 0.5 billion; $0.6 billion), the focus on the smart fortwo (euro1 billion; $1.2 billion), the staff reductions at the Mercedes Car Group (euro 0.4 billion; $0.5 billion), as well as gains on the disposal of the off-highway business (euro 0.2 billion; $ 0.2 billion), on the sale of real estate no longer needed for operating purposes (euro 0.1 billion; $0.1 billion) and the release of provisions for retirement-pension obligations (euro 0.2 billion; $0.2 billion).

But the auto company cautioned that the fresh forecast does not include potential effects from the company's 22.5% stake in EADS (European Aeronautic Defence and Space Co.).

Chrysler will cut production of large vehicles and other slow-to-sell models further than it had already declared to make way for the new models it is rolling out this year, including the Sebring, being built in Sterling Heights. US based Chrysler Group is slashing production of the large vehicles with the hope of avoiding the kind of sweeping restructuring under way at Ford and General Motors.

"The Chrysler Group is facing a difficult market environment in the United States with excess inventory, non-competitive legacy costs for employees and retirees, continuing high fuel prices and a stronger shift in demand toward smaller vehicles," DaimlerChrylser said in a statement. The US consumers have switched over to fuel-efficient cars at the expense of light trucks and sport-utility vehicles.

The company's shares dipped $3.54 to close in New York yesterday at US$49.36, down 6.7%. And, in Frankfurt trading its shares dropped 7.7% to 38.3 euros.