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From the Detroit Insider:

Profit dip puts DCX in neutral

Chrysler's lower quarter earnings dampen effort to break from Big 3.

Josee Valcourt / The Detroit News

The Chrysler Group wants to disassociate itself from its money-losing Detroit rivals -- a theme that marketing chief Joe Eberhardt reiterated this week in a meeting with dealers in San Diego, Calif.

But the Auburn Hills automaker's first-quarter financial results showed that it's having trouble breaking out of the pack.

Chrysler's first-quarter operating profit slid by more than half to $144 million from $306 million a year ago, weighing on its parent company DaimlerChrysler AG's performance, as the automaker offered the highest incentives in the U.S. of any major automaker.

While the Mercedes Car Group continues to lose money -- its losses narrowed to $823 million from $1.2 billion a year ago -- DaimlerChrysler's total profit rose 4 percent to $363 million, propped up by higher earnings from its van business and financial services.

The automaker's shares fell 3 percent in New York Stock Exchange trading Thursday to $56.34 as investors expressed disappointment with the pace of Mercedes' improvement and concern about Chrysler's results, even though its financial performance in the first quarter was stronger than that of General Motors Corp. or Ford Motor Co.

"Despite an intensely competitive market, Chrysler Group was able to deliver our 11th consecutive quarterly profit in the first quarter," Chrysler CEO Tom LaSorda said. "The company will continue its actions to improve efficiency, flexibility and customer satisfaction in the current year."

But as the automaker tries to align itself with the winners -- it's launching a record 10 products this year -- excess inventory and deep incentives could halt Chrysler's winning streak.

"The figures were a bit disappointing," said Patrice Solaro, a Paris-based auto analyst at Kepler Equities. "Chrysler's profit margin is less than 1 percent now, and it won't recover in the second quarter because the new products don't come out until autumn."

Bodo Uebber, DaimlerChrysler's chief financial officer, cited rising interest rates, high raw materials prices and competition as the main risks Chrysler faces.

"For the Chrysler Group, we anticipate a continued difficult product environment," said Uebber, adding new products, most of which roll out later this year, should help the automaker.

But the automaker has been hurt by the shift from large trucks. Next month, it will temporarily idle its SUV assembly plant in Newark, Del., and its Warren Truck factory, where the Dodge Ram and Dodge Dakota are built, to lower swollen inventories.

Eberhardt told dealers this week at a meeting at the Hotel Del Coronado in San Diego that Chrysler does not want to be considered part of the Big Three anymore, according to one dealer in attendance. Chrysler should be compared to Toyota Motor Corp. and Honda Motor Co., Eberhardt said.

David Healy, auto analyst at Burnham Securities, says it will be hard for Chrysler to shed the "Big Three" label.

"They're going to be building the same kind of products that everyone else is offering," Healy said. "Their hope is to do it cheaper and better and they succeeded for the past couple of years but now the margin squeeze is on."

During the first quarter, Chrysler's fleet sales ballooned to 34 percent of overall sales, from 30.6 percent the same period a year ago. The automaker saw a 4 percent rise in retail sales to 690,656. Generally fleet sales are not as profitable as retail car and truck sales.

But Chrysler is still performing substantially better than its crosstown rivals.

Its operating profit isn't fully comparable to Ford and GM results because it excludes some pension expenses.

"If you did a strict apples-to-apples comparison, they might have been slightly in the red," Healy said. "But this is trivial, compared with the huge losses at Ford and GM."

Gas prices that now hover at about $3 a gallon are also causing a slight shift between light trucks and cars, Uebber said.

Jesse Toprak, an analyst with Edmunds.com, said despite its high incentives, Chrysler's brand image has improved and it has increased its share of the U.S. market.

Unlike GM and Ford, Chrysler has grown its market share throughout last year and for the first quarter of 2006 it stands at 14 percent from 13.8 percent last year.

The automaker's sought-after Chrysler 300 sedan has been a hit in the tough-to-crack West and East Coast markets, where domestic brands aren't as popular as foreign nameplates.
 
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