Chrysler caught in the cross fire Industry's rising incentive spending takes toll

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1 Page 1 of 5 Member ID: Password: Free Membership Special Offers FRONT PAGE MARKETS GLOBAL MARKETS IPOS ECONOMY & POLITICS MUTUAL FUNDS COMMENTARY NEWS Enter symbol(s): Quote/News Find symbol Keyword search FREE! Sign up for the Before the Bell e-newsletter BECOME A MEMBER AT CBS MARKETWATCH Special Offers! My Portfolios My Alerts e-newsletters Message Boards View All Member Benefits address here Join now! MARKETWATCH TOP 10 FEATURES BigCharts Technical Analysis The Dealmakers The Calandra Report Chrysler caught in the cross fire Industry's rising incentive spending takes toll By August Cole, CBS.MarketWatch.com Last Update: 10:56 AM ET July 23, 2003 SAN FRANCISCO (CBS.MW) -- Few dissented when General Motors initially announced its aggressive financing and discounting campaign after Sept. 11, 2001, but DaimlerChrysler was one of them. Now, caught in a marketing melee with Ford Motor and General Motors almost two years later, it's clear why the world's No. 3 automaker did not want to go down that road. Citing incentives, revaluing dealer inventory, lower sales and residual values, Chrysler Group announced in early June that it expected to lose more than $1.1 billion in the second quarter. See full story. Since the warning, DaimlerChrysler shares (DCX: news, chart, profile) in New York have risen more than 5 percent -- shares were down 18 cents Wednesday at $ as investors gear up for the latest report. The final tally will be released Thursday when Stuttgart, Germany-based DaimlerChrysler reports results. Wall Street is already worried that the $2 billion turnaround EARNINGSWATCH Citigroup sees profits acclerating in next quarters Cinergy's Q2 income, sales rise Lower tax rate, higher sales lift Coors' Q2 earnings Viacom beats profit target, launches dividend Free! Sign up here to receive Thom Calandra's StockWatch e-newsletter! address Sign Up! TRACK THESE TOPICS My Portfolio Alerts Company: Daimlerchrysler Ag Add Create Company: Daimlerchrysler Ag Add Create Get Breaking News sent directly to your inbox

2 Page 2 of 5 Hulbert Financial Digest Latest earnings news Newsletter Center Alerts via Newsletter Directory Upgrade/Downgrades More Features SPONSORED LINKS Trying to Make Sense of Today's Volatile Market? Get your 2003 Stock Market Outlook - Free of cost or obligation! BrownCo Knows What You Want Want an online broker that rewards you for your experience with $5 trades? Go to browncoapply.com now - the site built and priced for experienced traders. You know what you want. We get it. ADVERTISER LINKS American Express - College 529 Planning - Invest Smarter, Safer - Retirement, Know More effort is stalling and that Create A Portfolio Create An Alert DaimlerChrysler won't be able to break even this year. Analysts expect, according to Thomson First Call, that DaimlerChrysler will earn 7 cents in the quarter and $2.41 for the year. Last year, the company earned $1.19 a share in the second quarter. "We believe this target to be very challenging, given the current trend in incentives and the lack of new Chrysler products. Management may have engineered a restructuring plan but we believe it may only have a limited impact this year," wrote Lehman Bros. auto analysts Jeremie Papin and Christopher Will. And credit ratings agency Standard & Poor's said after the June warning that it could cut the No. 3 automaker's debt ratings if it doesn't shore up Chrysler's operations "within the next few quarters." Ford and GM have already reported their second-quarter results. The automotive operations saw falling profits and sales while lending operations helped overall earnings. Industry overcapacity is making life tough for all the automakers and as the restructuring rippling through the industry becomes all the more important. A year ago, results from a restructuring Chrysler helped lift the overall financial performance of the German giant. Now, Chrysler sales are under pressure at a time when Mercedes sales are on the rise to record levels. Chrysler brings in the bulk of DaimlerChrysler's U.S. sales but a smaller proportion of the earnings. So far in 2003, Mercedes-Benz U.S. sales through the first half of the year are up 2.9 percent to about 105,888 vehicles while Chrysler sales are down 4 percent to 1,105,236 vehicles. Numbers aside, Chrysler's prospects are best understood by looking at the two new products that observers say are the first offspring of the 1998 marriage of the companies. On the road Monthly Newsletter The definitive guide to financial newsletters Newsletter Profile Detailed newsletter performance Honor Roll Top performers in up & down markets ORDER NOW! The recently introduced Chrysler Crossfire, a coupe, and the Pacifica, a large station wagon with SUV-like road presence, is a pretty clear indication of the promised benefits of the DaimlerChrysler (DCX: news, chart, profile) merger. "These are the first two vehicles that represent the 'merger of equals,'" said Karl Brauer, editor in chief of Edmunds.com. Both lean on Mercedes-Benz engineering under American sheet metal, and the auto media are largely impressed with the results so far. It's particularly evident with the Crossfire, which borrows the underpinnings from the Mercedes CLK coupe. "It's the only product that synthesizes what was promised by the DaimlerChrysler merger," said Patrick Anderson, head of Anderson Economic Group in Lansing, Mich. Under the hood The premise: three-pointed star quality with five-pointed star prices. That was the idea, at least. These two new vehicles are priced out of the company

3 Page 3 of 5 that Chrysler usually keeps. Both are north of $30,000, in the range of Audi's TT or Acura's MDX sport utility vehicle, said Brauer. Mercedes, meanwhile, is aggressively working on the entry-level buyer with cheaper products that still have the corporate cachet. But Chrysler's overall quality is improving, even challenging Mercedes-Benz in the latest J.D. Power long-term quality survey. See full story. Now, DaimlerChrysler must mind Mercedes-Benz while getting Chrysler under control. If Mercedes quality slips so much that buyers become concerned, that could become a potential problem, said Edmunds.com's Brauer. Tracking the reception of these two products then becomes as important as the quarterly numbers themselves. "There's great potential to make it work and driving the Crossfire and Pacifica shows you that," said Brauer. August Cole is spot news editor at CBS.MarketWatch.com in San Francisco. Latest Industry News Get Alerted on News in this Industry Siemens optimism leads European markets higher 7:35am ET 07/24/03 DaimlerChrysler second quarter profit, sales drop 7:28am ET 07/24/03 Siemens June quarter sales drop, but profits beat 6:10am ET 07/24/03 Sony, Taiwan Semiconductor in focus ahead of earnings 4:36pm ET 07/23/03 Tokyo stocks rally after Wall Street gains 5:49am ET 07/23/03 Sponsored Links List your site here Trying to Make Sense of Today's Volatile Market? - Get your 2003 Stock Market Outlook - Free of cost or obligation! BrownCo Knows What You Want - Want an online broker that rewards you for your experience with $5 trades? Go to brownco-apply.com now - the site built and priced for experienced traders. You know what you want. We get it. Financial Planning Newsletter for Retirees - Free - Free newsletter to cut taxes, pick better mutual funds and stocks, cut costs of long-term care insurance, cut tax on IRA distributions - and more. For those ready to retire or already retired. Telecash - Get a Fast Cash Advance Loan! - Get a fast cash advance from $100 to $500 from TeleCash deposited directly to your checking account! Refinance: Fill Out 1 Form, Get Up to 4 Offers - America's Lending Partners can help you get a great deal on your refinance or home equity loan for any purpose. This free service is available to all homeowners with all credit types. NEW! Get the Before the Bell e-newsletter Want to get a preview of the market before it opens each day? Now you can with the FREE Before the Bell e-newsletter. Subscribers will get a comprehensive, pre-market look at all the stocks expected to move each day, plus all the early news and action in Europe and Asia. Sign up for the Before the Bell e-newsletters

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