Chrysler Will Thrive Again, DCX Tells Shareholders

December 18, 2000

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STUTTGART, GERMANY (Dec. 18, 2000) -- In a letter to shareholders, DaimlerChrysler blamed heavy competition and high costs for recent problems at its Chrysler Division and promised to announce a formal plan of action by late February.

The letter, signed by executives Jurgen Schrempp and Manfred Gentz, also stated that the automaker would restructure Chrysler and "vigorously defend" itself against recent lawsuits from shareholders.

In the letter, DaimlerChrysler says competition in the American market -- and rapidly rising discounts and incentives -- played a heavy hand in Chrysler's recent losses. It also said that the high costs in launching new vehicles hurt the division.

This year, Chrysler has launched the PT Cruiser, Dodge Stratus and Chrysler Sebring, and the automaker said it had not yet recovered the up-front costs from those debuts.

"Decisive action has now been taken to solve the situation at Chrysler," said Schrempp, DaimlerChrysler's chairman. "Already, we have begun to take the tough decisions necessary to restore the business to full financial health.

Chrysler lost $512 million in the third quarter of 2000, a 92 percent drop in income.

"In order to restore Chrysler to profitability as soon as possible, what is already clear is that we must restrucutre the business," Schrempp continued. "This will bring with it a cost."

The letter did not elaborate on costs but mentioned that Chrysler cut production to reduce inventories as DaimlerChrysler examined "every part of the value chain."

The automaker plans to fully announce its plans for Chrysler on Feb. 26 during its year-end report for 2000.

In recent weeks, some shareholders filed lawsuits against DaimlerChrysler after Schrempp admitted in interviews that he always planned to make Chrysler a division of Daimler-Benz, not an equal partner as he pledged during the 1998 merger.

That admission came quickly after Schrempp fired Chrysler President James Holden and put German businessman Dieter Zetsche in his place. Schrempp also hired Wolfgang Bernhardt as chief operating officer.

DaimlerChrysler also stated that Mitsubishi Motors planned to refocus its business in 2001. The automaker owns a 34 percent share in Mitsubishi.

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