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. Last Updated: 07/27/2016

Ailing Daimler Says It Won't Shed Chrysler

FRANKFURT, Germany -- German auto giant DaimlerChrysler AG remains committed to its ailing U.S. Chrysler unit and has no intention of selling it, a company board member told a German newspaper.

"Chrysler belongs to us, just like Mercedes-Benz," DaimlerChrysler board member R?diger Grube told Die Welt newspaper, according to the article published Monday.

"The strategy that DaimlerChrysler has been following since the 1998 merger needs time, because we are dependent on the product cycles in the auto industry," Grube was quoted as saying.

The world's fifth-biggest carmaker said last week its core profits sank by nearly two-thirds in the second quarter, hit by losses of 948 million euros ($1.1 billion) at Chrysler.

Chrysler's woes have fueled questions about the strategic logic of its 1998 merger with Daimler-Benz, since when the group's stock has lost nearly three-quarters of its value.

Grube also said DaimlerChrysler was confident of sealing a planned trucks joint venture with Korean manufacturer Hyundai Motor, with union negotiations the final hurdle.

DaimlerChrysler planned to form a 400 million euro joint venture in the first half of 2003 with Hyundai, South Korea's top automaker, but tough labor demands have been delaying the deal.

The carmaker issued a shock profit warning last month due to Chrysler's troubles and said late last week that second-quarter operating profit dropped 62 percent to 641 million euros ($736 million) from a year ago.

The group, whose brands include Mercedes, Jeep, Dodge and Freightliner, also said it still aimed to post an operating profit of about 5 billion euros for the full year.

"The development of leading indicators in recent weeks has pointed towards an improvement in economic prospects," chief executive J?rgen Schrempp told a conference call.

Chrysler, which blamed fierce pricing competition in the United States for the collapse in earnings, posted a second-quarter operating loss of 948 million euros and was still a concern.

The group said it would still strive for a small operating profit at Chrysler this year, due to further cost cuts, but that risks remained due to the tough market.

Some analysts saw the comments as a hidden profit warning.

"There are major risks in the U.S. market and the competitive situation there, and I believe Chrysler in the second half will be hit again," said Michael Raab, auto analyst at Sal Oppenheim. "My conclusion is they will not finish the year in the black."

Margin-devouring consumer incentives, which have become a staple of the U.S. car market, have also hurt profits at Detroit rivals General Motors Corp. and Ford Motor Co.

DaimlerChrysler cut its full-year revenues target to 135 billion euros from an earlier goal of 145 billion euros, citing lower unit sales and the stronger euro against the dollar.

The group, 90 percent hedged on the U.S. dollar, British pound and Japanese yen this year, said however, it expected only a limited impact on 2004 earnings from a stronger euro.

The trucks unit, which aims to lift profits significantly this year through cost savings, performed better than expected with a second-quarter operating profit of 211 million euros, compared with a loss of 7 million euros a year ago.

Mercedes, the earnings motor for the group in recent years, saw its operating profit inch up to 861 million euros in the second quarter and its 6.5 percent operating margins were flat.

June's profit warning shook investors and sparked questions about the strategic logic of the 1998 merger between Chrysler, then the most profitable U.S. carmaker, and Daimler-Benz.

But Schrempp, who came under pressure 2 1/2 years ago when Chrysler losses dragged the whole group into the red, defended his global strategy.

"We have identified mainly a market and revenue problem. We have to solve that problem but it has no effect whatsoever on our strategy," Schrempp said. He added that signs of a recovery in the world economy combined with new product launches could make 2004 a better year for business than 2003.

But an additional blow came earlier from Japan's Mitsubishi Motors Corp., 37 percent owned by DaimlerChrysler, which earlier slashed its earnings outlook.