DaimlerChrysler (NYSE:DCX) CEO Dieter Zetsche commented in the automaker's latest financial press release that earnings "aren't where we want them to be." But considering the troubles at Daimler's U.S. rivals General Motors (NYSE:GM) and Ford (NYSE:F), the German-American company's results seem anything but disappointing.
Still, even if DaimlerChrysler is outpacing its American opponents, a close look at the numbers shows just how challenging the automotive business has become. The good news is that the company's approach to these challenges -- more fresh products and more cost reductions -- seems sound.
Revenues for 2005 rose 5% to $177.4 billion, while earnings per share increased 15% to $3.32 from $2.88. For the fourth quarter, meanwhile, revenue jumped 9.8% and EPS rocketed by 83.6% to $1.12 from $0.61. EPS in the fourth quarter benefited from a 10.9% increase in operating profit, to $507 million. That rise is reversed, though, when one factors in the $284 million gain the unit realized from the sale of a vehicle-testing facility.
The company's strategy in the Chrysler unit -- introducing new vehicles with bold styling -- has helped the American unit's performance. Still, Chrysler's revenue figure for the year says a lot about the intensely competitive nature of the automotive market. Even with the "product offensive" of a slew of new vehicles, 2005 revenue rose a scant 1%.
If DaimlerChrysler wants its Chrysler unit to keep growing, it seems it has to keep pumping out new products. In fact, that's what it intends to do, with 10 all-new models planned for 2006 alone. In addition, the company wants to sell more Chryslers in international markets. Both of these efforts should help keep the unit's sales stable at least.
Meanwhile, the company is trimming the fat. DaimlerChrysler already has eliminated 5,000 of the 8,500 jobs it expects to cut at Mercedes' German operations by September 2006. Further, recently announced plans to cut $1.8 billion from annual administrative expenses should help earnings. These efforts are already bearing some fruit with the Mercedes group, which produced an unexpected operating profit in the fourth quarter.
DaimlerChrysler is at the healthier end of the automotive spectrum, and the company has a good plan to keep getting healthier. But the auto business remains incredibly tough, so any improvements are likely to remain limited.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
