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News
Chrysler loses money, exec
September 27, 2000: 3:05 p.m. ET

3Q loss to hit overall profit; Gale, credited with styling gains, retires
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - DaimlerChrysler revealed a double dose of bad news Wednesday, warning that its profitability will suffer due to losses in North America this quarter, and announcing the departure of Thomas Gale, who helped bring stylish designs back to Chrysler cars.

The German-American automaker blamed the loss at its Chrysler Group on what it called a difficult market situation as well as new product startups. The company said that unit should be profitable again in the fourth quarter.

The Chrysler Group's third quarter loss should come to 600 million euros, or $528 million. For the full year its profit should come to 2 billion euros, or $1.76 billion.

graphicWhile the statement did not give specific third-quarter guidance for the company as a whole, it said that full year pre-tax operating profits, excluding special items, would drop by 30 percent, falling below forecasts.

Operating profit, including one-time effects, is expected to reach last year's level. But excluding special items, the company expects to earn around 7 billion euros, or $6.16 billion, for the year.

David Healy, analyst with Burnham Securities, said that the new guidance should reduce overall pre-tax earnings estimate by just over 1 billion euros, or about $900 million, and that it should reduce after-tax earnings to about $4.49 for the year. The forecast of earnings tracker First Call calls for a $5.66 profit for the year, which was already off the $6.49 a share it earned in 1999.

"A decline is not a surprise here, but the size of the decline is a surprise," Healy said.

Healy said larger than expected incentives needed to sell remaining 2000 model year vehicles, especially the minivans, were responsible for much of the earnings problem, but that the problems extend to other segments of the combined company as well.

When the DaimlerChrysler merger was announced in 1998, executives from the two sides promised huge savings from combined operations, and that the company's direction would be set by both U.S. and German executives.

The savings have not materialized as promised though, and as sales cooled this year from a very strong market for autos in 1999, the stock price has declined steadily.

"I think they were unrealistic," said David Cole, director of the office for study of automotive transportation at the University of Michigan. "I don't think there was a way to have that kind of savings when there was so little product overlap. You can get some economy in purchasing, but that's about it.

"It's a tremendous challenge to put companies together, and it's particularly difficult when you have very different cultures in the companies as you do here," he added.

Gale one of few U.S. execs in inner circle


The retirement of Gale, 57, is another blow to morale for some U.S. employees. Gale was executive vice president in charge of product development and design and one of four Americans on the 13-member management board of the German-U.S. automaker. With his departure, the board will drop to 12 members, leaving Americans with one-quarter of the seats.

graphicGale had been with Chrysler for 33 years. He said he is leaving to spend more time with his family, saying he's been thinking of retirement for three years, before the combination of the two companies in 1998.

He will remain with DaimlerChrysler in an advisory role for the next two years, a position that includes a non-compete clause to keep him from going to a competitor. Gale had been rumored to be going to other automakers in recent years.

"I've been with Chrysler a long time, but I've got an awful lot of affiliation and heart here," Gale said in a phone press conference Wednesday from the Paris Auto show.

Gale would not comment on the earnings warning for the Chrysler Group issued Wednesday.

"This (departure) is in no way a reaction to difficulties that lie ahead," he said. "Chrysler Group may in fact have a few rough spots ahead in its path, but I believe we have the right team to pull it off."

He said he will also do consulting work for other companies, but not for other automakers.

Voices confidence in successors


Gale's retirement is effective at the end of the year. Richard Schaum, an American who was promoted to an executive vice president post Wednesday, will assume his engineering and product development responsibilities, although he won't be on the management board.

Gale said he doesn't feel too bad about reduced representation by Americans in the top echelons of DaimlerChrysler.

"I suppose you always think about that," he admitted. "The way we've organized around business units, it's probably natural. The business unit will be well represented. Those are things you can't change and you don't worry about it."

But one of the problems for DaimlerChrysler stock is the lack of support by U.S. investors, and the exit of U.S. executives has been seen as a part of that problem, according to analysts.

"His departure is not going to make or break the company, but the cumulative loss of the top people from Chrysler is a significant drag, although it's hard to quantify," said Healy.

Gale said he has full confidence in Schaum as well as Trevor Creed, who was recently appointed senior vice president of design, as well as the rest of the design team at the company.

"They deserve a chance to lead on their own right," he said. "The unsung heroes are really the engineers and studio chiefs and directors who have been there to make it possible for this to happen. I've probably gotten a lot more credit than I've deserved."

Gale has been widely credited with taking Chrysler from dull, unexciting designs to some of the most admired and popular ones in the industry. Two of the hottest designs on the market right now are Chrysler's PT Cruiser, a hybrid of car and minivan that recalls the gangster sedans of the 1930s, and Dodge's Viper, a limited edition muscle car that Gale identified Wednesday as his favorite.

"It's like picking out which of your kids you like the best," he said when asked to identify a favorite vehicle. "I think Viper will always have a special place in my heart. Viper and all the concept cars did so much to put a face on the product. With them we've been able to upgrade image of the brand, allowed us to rise from being a distant third (in terms of profitability.)"

Despite his modesty Wednesday, Gale and his design vision deserves a lot of credit for getting Chrysler back on its feet, Healy and Cole said.

"Chrysler has developed a reputation for flair and design that originated with Tom," Cole said. "But he's been a lot more than a designer the last few years. He's been much more of an executive. I can't help but feel he's sick of it."

Shares of DaimlerChrysler (DCX: Research, Estimates) gained 50 cents to $45.50 in New York trading Wednesday, although that was off $2.15 from an intraday high before the announcements. Back to top

-- Click here to send e-mail to Chris Isidore

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.