Analysis and discussion of issues that impact business

This is not what anyone wanted to hear.

DaimlerChrysler Chairman Dieter Zetsche was surprisingly frank in a presentation Tuesday to European analysts and investors. He called Chrysler's expected $1.5 billion loss this quarter "unacceptable."

But if you read between the lines, some other serious issues arise.

Not that any of us really want to spend too much time looking deeply at the bad news, but...

Sales at the company have fallen 10 percent in the first half of 2006, which is even worse than the industry average of 4 percent. Zetsche said he and Chrysler's U.S. management didn't move quickly enough to slow production or make necessary cuts when sales slowed down and trucks and sport-utility vehicles piled up in dealer lots early in the year.

"Slow production" and "make necessary cuts" are not comforting words for anyone.

This summer's employee pricing deals didn't slash inventories the way he and his deputies had hoped. So he will cut production by 16 percent and take a big loss in the second half. That amounts to approximately 135,000 units for the second half of 2006. Says Zetsche, "We had to bite the bullet."

That bullet looks like it's going to be passed around.

While Zetsche says he has no such plans (to spin off Chrysler), he and Chrysler Group Chief President and CEO Tom LaSorda both accepted blame for Chrysler's woes. What they didn't offer was a radical plan to cut plants and jobs in the way proposed by rivals General Motors and Ford.

The workforce should be happy about that. But it's partly because they'd have a tough row to hoe.

It's hard to blame Chrysler executives for wanting to see how their (2007 model year) cars will do before whipping out the ax. Leaders of the United Auto Workers union have already been worked over by GM and Ford. In fact, they won't even give Chrysler the cuts to health-care plans that their cross-town rivals got.

 I'm sure the UAW would make that a bloody battle.

 But the road to recovery will be decidedly uphill.

Chrysler will have to find a way to boost sales and make profits with something other than the pickups, SUVs, and minivans which make up 70 percent of its volume. Its new compact cars and family sedans will have to win in an import-dominated passenger car market. "Dodge cars have no credibility in the market and Chrysler's brand isn't much better," says John Wolkonowicz of Global Insight.

So the news continues to concern analyts.

...Chrysler's profitability has been falling since 2004. Last year was Chrysler's best since 1999 when the Germans first bought the company. Chrysler made about $1.9 billion, but about $284 million came from the sale of its Arizona proving ground. Take that out and operating profits were less than in 2004. This year, first-half operating profits are just $217 million, an 80 percent decline versus the first half of 2005.

There's some hope...

"I think this company still has an advantage over its American competitors in creativity, speed, and the willingness to take risks," says John A. Casesa, a partner of automotive consulting firm Casesa Shapiro.

...but some concern as well.

But each of Chrysler's past turnarounds also came with painful bloodletting. In 1980 and in the early 1990s under Lee Iacocca, and in 2001 through 2003 under Zetsche, Chrysler slashed salaries and cut thousands of jobs to get back to health.

I imagine if the 'speculators' are concerned, DC employees are on pins and needles.