Feb. 3 (Bloomberg) -- DaimlerChrysler AG's Chrysler unit unveiled convertible versions of the PT Cruiser and Crossfire models at the Detroit car show last month, part of Chief Executive Juergen Schrempp's plan to return Chrysler to profit.

Chrysler plans to introduce 25 new models in the next three years to reduce incentives averaging more than $4,000 a car, end losses that totaled $756 million in the first three quarters of 2003 and restore market share in the U.S., which last year shrank 0.3 percentage points to a 12-year low of 12.8 percent.

Schrempp, 59, is trying to fix Chrysler six years after he masterminded the $36 billion purchase by Daimler-Benz AG. Chrysler has lost customers in the U.S. to Toyota Motor Corp. and Nissan Motor Co. and failed to meet its profit forecasts last year. DaimlerChrysler's fourth-quarter profit probably rebounded following the sale of a unit, according to an analysts' survey.

``Chrysler's problems are still the same,'' said Markus Brueck at Metzler Investment GmbH in Frankfurt, who helps manage the equivalent of $12.4 billion. ``They say they have model offensives, but most are just face lifts. I don't think they'll be able to reduce the incentives.'' Brueck said he sold all his DaimlerChrysler shares in early January.

DaimlerChrysler, based in Stuttgart, Germany, may tomorrow report fourth-quarter net income rose by more than eight times to 1.46 billion euros ($1.8 billion) following a one-time gain from the sale of MTU Aerospace Engines GmbH to Kohlberg Kravis Roberts & Co., according to 14 analysts surveyed by Bloomberg News. Sales probably fell 5.2 percent to 35.1 billion euros amid a drop in demand for Chrysler vehicles, according to the median estimate.

Expensive

Of the analysts who cover DaimlerChrysler, 27 rate it a ``hold,'' 18 rate it a ``sell'' and 10 rate it a ``buy,'' according to data compiled by Bloomberg. The stock trades at 12.95 times expected earnings for next year, compared with 7 times for General Motors Corp. and 10.1 times for Bayerische Motoren Werke AG, the No. 2 luxury carmaker behind DaimlerChrysler's Mercedes Car Group.

Chrysler expects the introduction of nine new vehicles to add to its bottom line this year, division Chief Executive Dieter Zetsche said on Jan. 6. Schrempp, through Hartmut Schick, a spokesman, declined to be interviewed for this article.

Chrysler's spending on incentives, which it uses to lure customers from General Motors, Toyota and Ford Motor Co., rose 7.7 percent in the fourth quarter from the third quarter to an average $4,332 a vehicle, according to CNW Marketing Research. Against the year-earlier period, average incentives were 33 percent greater.

In December, Chrysler's car sales in the U.S. fell 16 percent from the year-earlier period and for the full year its car sales fell 13 percent. Chrysler's total vehicle sales, including light trucks, fell 3.5 percent.

Incentives' Effects `Worse'

``Incentives are really eating into the cost savings at Chrysler and it's getting worse, not better,'' said Frankfurt- based Michael Raab, an analyst at Bank Sal Oppenheim with an ``underperform'' on DaimlerChrysler. ``If you lower the incentives by a couple hundred bucks, you'll get a massive decline in sales.''

Chrysler has been losing ground to Toyota and Nissan. Tokyo- based Nissan aims to boost sales to more than 1 million vehicles in 2005 from 794,481 units in 2003. The carmaker has added new and revamped models for the last two years, including the 350Z sports car, Maxima sedan, Murano and Armada sport-utility vehicles, Quest minivan and Titan pickup.

Chrysler's sales may increase by 4 percent this year, according to Rebecca Lindland, an analyst at Global Insight, an automotive consulting company, helped by the PT Cruiser convertible, the Chrysler 300M and the Pacifica station wagon.

`Expensive' Growth

``They're going to really push the Pacifica,'' said Lindland. ``But they'll have to support that with incentives. That 4 percent growth could be quite expensive.''

Schrempp's acquisition of the Auburn Hills, Michigan-based company turned DaimlerChrysler into the world's fifth-biggest carmaker with brands including Mercedes-Benz, Smart and Chrysler.

At the same time, shareholders have lost 46 percent of their investment since the acquisition, as losses at Chrysler mounted.

The stock is up 3.2 percent this year compared with a 3.1 percent decline at BMW.

The yield on DaimlerChrysler's 1 billion euros worth of bonds coming due in 2011 rose 2 basis points to 4.65 percent yesterday, according to pricing information from Dresdner Kleinwort Wasserstein on Bloomberg. A basis point is 0.01 percentage point. The spread, or difference between government debt of similar maturity, has fallen 27 basis points to 77 basis points since Oct. 21, when the company released third-quarter earnings.

Forecast Scaled Back

Chrysler originally aimed to post a 2003 operating profit of as much as $2 billion. It revised that to a forecast for a ``small profit'' for 2003 after reporting a loss of 649 million euros in the first nine months of the year.

The division accounted for more than half of DaimlerChrysler's profit in 1998. It started losing money in the second half of 2000. Schrempp fired the American head of Chrysler and replaced him with Zetsche. He has also cut 34,000 jobs and closed seven factories to reduce costs.

Mercedes, headed by Juergen Hubbert, now accounts for more than half of total profit before interest and taxes. The unit's nine-month operating profit rose 2 percent from the year-earlier period to 2.3 billion euros.

Mercedes Sales

Sales by Mercedes fell 1.4 percent to 1.21 million vehicles last year, losing ground to Munich-based BMW, which raised 2003 sales 4.3 percent and which expects further growth with the X3 sport-utility vehicle and the 6-Series car.

The U.S. is Mercedes's second-largest market. The company has said it has hedged ``almost all'' of its currency risk for 2004 and ``less'' for 2005. The company raised the prices of its vehicles in the U.S. by an average 1.2 percent for 2004 models.

The changes range from $550 for the C230 Kompressor coupe, which increases the price to $25,850 from $25,300, to an $800 increase for the high-end S600 sedan, which rises to a base price of $122,900 from $122,100.

Profit at DaimlerChrysler is also being held back by the Mitsubishi Motors Corp. affiliate, Japan's fourth-largest automaker, which expects to have a loss of 11 billion yen for the year ending March 31. DaimlerChrysler owns 37 percent of the Tokyo- based carmaker.

Mitsubishi's sales in the U.S. have fallen, with the Colt compact model missing monthly targets, as the carmaker has tightened lending policies to cut the number of defaults. Mitsubishi has increased its average incentive in the U.S. 42 percent to $2,376 to stem the decline in demand.

Commercial Vehicles

DaimlerChrysler is also the world's largest maker of commercial vehicles. The company has announced plans to cut costs by sharing components among its European, U.S. and Asian affiliates, though savings will only show in the years ahead, the company has said.

DaimlerChrysler increased the average salary for board members to 3.9 million euros in 2002. It hasn't released salary information for 2003. The company doesn't disclose Schrempp's salary, as German companies aren't legally required to reveal the pay of individual executives.

To contact the reporter on this story: Bret Okeson in Frankfurt bokeson@bloomberg.net.

Last Updated: February 3, 2004 02:17 EST