Dr. Z's Failing Grade

DaimlerChrysler AG was “over-optimistic” in gauging Chrysler Group's ability to maintain first-half sales momentum, admits the auto maker's chairman.

A contrite Dieter Zetsche vows greater vigilance to ensure the mistake is not repeated, announcing Chrysler's U.S.-bound production will be reduced by 90,000 units from plan in the third quarter, and by 135,000 units for the entire second half of the year.

Most of the impact will be felt at plants where Chrysler builds high-margin large trucks and SUVs, a development that has forced Chrysler and its parent to revise downward their economic forecasts.

Chrysler now says it anticipates a third-quarter loss of $1.5 billion, down from its earlier forecast of a loss of $635 million.

The move also forces parent DaimlerChrysler to cut its full-year earnings forecast by $1 billion ($1.27 billion). It now expects an operating profit of $5 billion ($6.34 billion).

The revised estimate caught analysts off-guard. And they let Zetsche know of their displeasure. “I totally accept (the business decline) should have been clear earlier,” Zetsche says.

Anaylsts suggested the trend was there for all to see with volatile fuel prices, rising material costs and very public incentive campaigns staged by crosstown Detroit rivals General Motors Corp. and Ford Motor Co.

But July sales were strong in the early going, Zetsche explains. However, unlike the previous year, deliveries dipped. And executives chose — uncharacteristically — to stand pat, Zetsche says.

“There is no way around saying we were over-optimistic,” he tells analysts in Stuttgart. “The conclusion was, ‘Next month we'll make (our sales target), next month we'll make it.’”

This, he adds, was “clearly a mistake.”

Referring to the auto maker's top managers, Zetsche says: “Not coming to this conclusion earlier, you can blame (any one) of us. I would not suggest our controlling system and our transparency in the Chrysler Group has no potential for further improvement. I definitely accept that as well.”