Chrysler puts 1Q loss at $515M

Daimler says its stake’s worth is down 81%

Eric Morath and Christine Tierney / The Detroit News

Chrysler Holding LLC, the parent company for automaker Chrysler LLC and its finance arm, lost $515 million in the first quarter of 2008, the company said Thursday, the same day that former parent Daimler AG said its stake in the Auburn Hills automaker is worth only a fifth of what is was six months ago.

In a rare move, privately held Chrysler made its quarterly loss public after Daimler reported that its 19.9 percent stake in the American company cost the German automaker 373 million euros, or about $585 million, last quarter, based on European accounting standards.

Chrysler officials said the net loss Daimler attributes to the U.S. automaker, incurred in the first quarter, is 65 million euro, or about $103 million, when based on American accounting standards and other bookkeeping differences.

Because Daimler owns about one-fifth of Chrysler Holding, it’s a reasonable estimate that Chrysler’s total loss for the quarter is five-times that figure — or roughly $515 million, when converted based on currency values as of March 31, Chrysler spokeswoman Shawn Morgan said.

The first-quarter shortfall puts Chrysler on pace to lose more than the $1.6 billion that executives said it lost in 2007.

Last year, New York private equity firm Cerberus Capital Management LP purchased 80.1 percent of Chrysler from Daimler for $7.4 billion. Since then, rising gasoline prices have eroded Chrysler’s sales of its bread-and-butter trucks, SUVs and minivans. That, coupled with little presence in foreign markets, has led to mounting losses and Daimler’s lowering of Chrysler’s book value.

"The market is terrible, their (vehicle) mix is bad, gas prices are up," said Gerald Meyers, a University of Michigan business professor and former chairman of American Motors Corp. "All those things say having stake in a predominately U.S. company that sells gas-guzzling automobiles is a bad bet."

Daimler values its stake in Chrysler at $268 million as of June 30. That’s a decline of 81 percent from the book value it assigned at the end of 2007.

The German automaker’s book value of Chrysler is reduced each quarter by the same amount as its loss, Daimler spokesman Han Tjan said.

Analysts say determining privately held Chrysler’s true worth is difficult and highly subjective.

Daimler is likely valuing its Chrysler assets extremely conservatively; to limit its exposure, said Joe Phillippi, principal of New Jersey-based AutoTrends Consulting Inc. "The faster they write it down, the better," he said.

But there is no doubt that it’s declining in value, said Rebecca Lindland, automotive analyst at Global Insight Inc. She noted that Chrysler’s lineup relies heavily on trucks and SUVs and there is little coming down the pipeline for fuel-conscious consumers.

Chrysler will introduce its new Dodge Ram full-size pick-up truck later this year and is planning new versions of its full-size sedans and Jeep Grand Cherokee SUV in the near future. The only small car that Chrysler has announced is coming to the United States will be built by Nissan Motor Co.

"From a product perspective, you can’t point to a light at the end of the tunnel," she said.

The Chrysler-related charges accounted for most of the 25 percent drop in Daimler’s second-quarter net profit, to $2.2 billion.

The Stuttgart, Germany-based automaker said sales of Mercedes-Benz luxury cars and commercial vehicles rose 10 percent in the second quarter to 566,500 vehicles, but it lowered its operating earnings forecast for the year by more than $1 billion because of slowing demand in many markets.

"The going has gotten tougher," CEO Dieter Zetsche told a teleconference.

Daimler now predicts its full-year operating profit will exceed $11 billion. The automaker’s stock fell 9.6 percent Thursday in Frankfurt trading.