DaimlerChrysler Credit Rating Raised based on North American Chrysler Division Profits

S&P Rates DaimlerChrysler Higher than GM for Debt Risk

How quickly the tables turn in the auto industry. Less than a year ago DaimlerChrysler AG board members were calling for Chairman Jürgen Schrempps head on a platter for his ambitious expansion plans into the U.S. and Asia, all of which were costing the worlds fifth largest automaker money and eroding Mercedes-Benz profits.

Now Schrempp looks like a hero, as the sale of the automakers Hyundai stock has netted DCX hundreds of millions in a mere four years, and Chrysler Group is pulling in profits due to its popular new models, the 300 series sedan, Pacifica crossover SUV and new PT Cruiser Convertible, Dodge Durango and recently introduced Magnum, among others, while Mercedes-Benz that is losing money.

It was Standard & Poors (S&P) Rating Services that cited Chrysler Group as the impetus behind DCXs rising credit fortunes on Wednesday of this week, upgrading the automaker from negative to stable.

Where do the other two domestic automakers stand? Ford Motor Co. is tied with DaimlerChrysler and stronger than General Motors Corp., or at least S&P thinks its future offers more stability being that its most recent ratings on the two firms are stable for Ford and negative for GM. That, of course, means S&P thinks DaimlerChrysler is currently less of a risk than GM.

S&P analyst Maria Bissinger stated that DaimlerChrysler is on target to surpass its 2003 performance "based primarily on Chryslers return to being a positive contributor to earnings."

To be fair to DCX, the automakers sizable investment into Chrysler is why the Auburn Hills company recently pulled in a profit of $628 million for the second quarter of 2004 compared to the $1.1 billion loss it suffered during the same period last year.

Unlike most domestics and many imports, Chrysler Group is enjoying a 3.3 percent sales increase for 2004. Also unlike Ford and GM, all of Chryslers profits are made up from the automotive vertical and not the automakers financing division, DaimlerChrysler Services. Its domestic rivals were kept in the black solely on the strength of their financial arms, with much of the earnings achieved from housing mortgages.

Kevin Frazier, a spokesman for the Chrysler Group stated, "(The S&P rating) is recognition of our strength as an automotive business."

While positive news, the S&P ratings increase isnt the first of such credit boosts this year. As recently as June, two credit-rating agencies showed bullish projections for DaimlerChrysler, as reported in the Detroit News. Moodys Investors Service has strengthened its outlook from negative to stable, and Fitch Ratings modified its outlook from stable to positive. Both ratings agencies saw the positive progress at Chrysler Group as well as the automakers commercial vehicles division as the reasons behind the improved ratings.

The ratings game will only improve if Chryslers next batch of new vehicles comes close to doing as well as the 300 and Durango. Its too early to tell if the Dodge Magnum will see as much success as the 300, but early reports are looking up. Also, a new flat folding seating system dubbed Stow n Go has reinvigorated Dodge Caravan/Chrysler Town & Country sales, giving the venerable minivan a much needed mid-cycle shot in the arm.

Next on the horizon is a new Dodge Dakota pickup truck, plus a completely redesigned Jeep Grand Cherokee. Both are expected to do extremely well, as brand loyalty is strong for each. Jeeps slightly smaller sibling has received a facelift plus a new diesel engine for 2005, expected to give it a boost in sales as well.

Early next year, the Dodge version of the 300 sedan, dubbed the Charger, is expected to arrive. No doubt the new model will repeat Chrysler Groups strong performance and value proposition to stir up what is otherwise a weak market.