Chrysler Could Face $2B Loss

Pressure on the Chrysler Group continues to grow as the company struggles with hefty inventories and mounting losses.

DaimlerChrysler AG confirmed Friday that the Chrysler Group will offer dealers and consumers a new round of incentives to reduce inventories of unsold 2006 models despite a modest increase in sales during November.

Steven J. Landry, Chrysler vice president of sales, said that one-third of the company's current inventory of unsold vehicles are 2006 models, which he conceded is a relatively high number. In addition, the company still has several thousand "unassigned" vehicles sitting in storage, he acknowledged. Landry, however, refused to say specifically how many unassigned vehicles were still sitting on dealer lots but he stressed the company expected to eliminate the problem by the end of the year.

Meanwhile, analysts inGermany have stepped up pressure on DaimlerChrysler's supervisory board to spin off the Chrysler Group. Rumors also persist in Germany that VW's Wolfgang Bernhard is on his way back to the U.S. to take over the Chrysler Group.

The big incentives - as high as $7000 on some vehicles - coupled with high labor costs and slower-than-expected sales of new models make it very likely that the Chrysler Group will post another operating loss during the fourth quarter, analysts said.

Laurie Harbour-Felax of the Royal Oak-based Harbour-Felax Group said, "The fourth quarter is going to be a killer." Harbour-Felax estimated that the Chrysler Group has gone from making a profit of $150 a vehicle last year to losing $1144 a vehicle through the first three quarters of 2006.

Another analyst, who asked not to be identified, suggested that the Chrysler Group's losses could reach $2 billion in the fourth quarter.

Harbour-Felax said the losses are putting enormous pressure on Chrysler to launch a major restructuring similar to those already underway at GM and Ford. "They have got to do something," she said.

Sean McAlinden, vice president of research at the Center for Automotive Research in Ann Arbor, said the speculation is that Chrysler could be forced to close three and possibly more plants as part of the restructuring. The company's assembly plants in Newark, Del., and the St. Louis North truck plant as well as the Detroit Axle plant could all be on the chopping block, said McAlinden. He suggested Chrysler may have to eliminate as many as 10,000 jobs.

Mike Aberlich, Daimler-Chrysler spokesman, said seven separate studies, covering every facet of the Chrysler Group's operation, are now underway. The results are to be announced in early 2007. "We're studying everything," Aberlich said. "We wouldn't expect anything to break until we complete the studies."

The studies were launched last month shortly after Chrysler reported a $1.5 billion operating loss for the third quarter.

Harbour-Felax said that one of the challenges Chrysler faces is that it had done a lot of things right in the past few years. The product line has been improved substantially and more new products are due out in 2007.

"It's going to be interesting to see what DaimlerChrysler does," she said.

[source: www.thecarconnection.com]