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Wednesday, 7 February, 2001, 12:34 GMT
Daimler slumps, Ford and GM warned
The Big Three auto makers may be facing a credit pinch.
The Big Three auto makers may be facing a credit pinch.
Troubled motor industry giant DaimlerChrysler has reported a near halving in profits.

The German-US firm said profits fell 49% in 2000 to 5.2bn euros ($4.85bn), due to problems at its Chrysler unit in the US.

That figure came despite the company, based in Stuttgart, Germany, reporting that sales rose 8% to 162bn euros ($149bn).

The announcement of results was a surprise to financial markets - their release was not scheduled until later in the month.

In January, DaimlerChrysler said it would cut 26,000 jobs and close several plants in the US to get the Chrysler unit back on the track to profitability.

Big two worries

Key to its recovery plans will be the launch later on Wednesday in Chicago of the latest version of its RAM pickup, a full-size vehicle that was last updated in 1994.

Meanwhile there was more woe for the world's two largest car makers, after credit-rating agency Standard & Poor's (S&P) lowered its outlook on General Motors and Ford.

In cutting its outlook to negative from stable, S&P on Tuesday said increased competition within the US market and slack demand in Europe and Latin America threaten Ford and GM, who combined have nearly $300bln in debt on the market.

General Motors assembly line
US auto makers face increased competition from Japanese and German manufacturers

S&P's rating on "senior" debt, for Ford and GM is "A", its sixth highest investment grade, while the agency rates their short-term debt "A-1," its second highest mark.

It warned, however, that GM's rating likely would be lowered within a year and Ford within two years, if the car makers are unsuccessful in lessening threats to their ability to make profits and maintain financial flexibility.

"Our concern is... that there could be considerable additional pressure on profitability", said S&P analyst Scott Sprinzen.

Renewed overseas threat

Much of S&P's concern revolved around the car makers's abilities to respond to European and Japanese manufacturers. Both Ford and GM face increased competition in the US within product lines they previously dominated - sport-utility vehicles (SUV) and trucks.

SUVs have been a huge source of profit for American car makers, as have larger pickup trucks.

Our concern is... there could be considerable additional pressure on profitability...

Scott Sprinzen, Standard & Poor's

But in recent months, increased energy prices have damped demand for larger SUVs and trucks. Also, recent inroads by Toyota and other Japanese and German car makers have further threatened American car makers profitability in the sector.

The S&P release also noted financial problems at DaimlerChrysler were "more acute" because its Chrysler division has posted huge losses, among other problems.

DaimlerChrysler holds a credit rating equal to GM and Ford but saw its outlook lowered by S&P in December.

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See also:

17 Jan 01 | Business
General Motors profits plunge
05 Jan 01 | Business
General Motors cuts US output
05 Jan 01 | Business
Bleak outlook for US carmakers
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