DaimlerChrysler Posts Profit, Concerns About Mercedes

Automaking giant DaimlerChrysler AG (DCX) said Thursday it earned 951 million euros ($1.18 billion) in the third quarter on good performances from its financial services division and its U.S. Chrysler arm, rebounding from a 1.7 billion euro loss a year ago when it had a large one-time write-off.

Chrysler's operating profit, boosted by well-received new models such as the 300C car and Dodge Magnum wagon, rose to 217 million euros ($269 million) from 147 million euros a year ago, another confirmation of the progress of a three-year turnaround at the once-troubled division.

Overall revenue rose 2.3 percent to 34.9 billion euros ($43.3 billion) from a year ago.

Financial services, as it has been for competitors Ford Motor Co. (F) and General Motors Corp. (GM), provides a strong boost to earnings, contributing 412 million euros ($512 million).

And the company's result got a boost from another former turnaround case, its commercial vehicles division, which stayed in the black although profits dipped to 159 million euros ($197 million) from 195 million euros a year ago.

But the dark spot in the earnings performance was shrinking earnings at its luxury mainstay, Mercedes, to 304 million euros ($377 million) from 793 million euros a year ago. The division, whose dependable profits sustained the company while Chrysler was bleeding money several years ago, suffered from weaker sales in Western Europe, and from added costs to improve quality and roll out new models.

Chief financial officer Manfred Gentz said during a conference call that closer quality controls at Mercedes were paying off and the expense should begin to diminish as the company pays out less to fix flaws.

"The positive story is, we can say and prove that vehicles that left our factory a year ago, there were almost no problems and the quality is significantly better than some of the vehicles we delivered in earlier years," Gentz said.

"The bulk of the problem will be resolved in 2004 and 2005," he said.

Gentz raised the possibility of restructuring at the Smart compact car (search) division, whose performance he called "disappointing. "We have to decide what we are going to do with the Smart business," he said.

Gentz also said the company is being investigated by the Securities and Exchange Commission (search) over alleged violations of the U.S. Foreign and Corrupt Practices Act (search) of 1977, based on a complaint from a fired employee. Gentz didn't provide details. The act bars U.S. companies from bribing foreign officials.

The company's latest results beat the average expectation of 728 million euros ($904 million) among analysts surveyed by Dow Jones Newswires. The company's stock was up 0.27 percent at 32.84 euros ($41.70) in afternoon trading in Frankfurt. Its U.S. shares were up 8 cents at $41.87 on the New York Stock Exchange.

The third-quarter results last year were affected by a 2.0 billion euro write-off for the fallen value of its share in aerospace consortium EADS. This quarter's result was boosted by several one-time gains, including 120 million euros ($149 million) from an adjustment of the sale price of Adtranz to Bombardier, and 60 million euros ($75 million) from ending a joint truck engine venture with Hyundai.

One-time losses included charges of 405 million euros ($503 million) to cover past quality problems and recalls at truckmaker Mitsubishi Fuso Truck and Bus Corp. and 119 million euros ($148 million) from a troubled consortium that is supposed to collect truck tolls for the German government.

The company also no longer has to show losses from Mitsubishi, its troubled Japanese partner. DaimlerChrysler's stake in Mitsubishi shrank after DaimlerChrysler declined to put more money into the company and Mitsubishi carried out a capital increase.