Frankfurt, Oct 21: DaimlerChrysler reported a sharper-than-expected drop in profits on Tuesday, with problems at its ailing U.S. unit threatening its earnings outlook and leading to a downgrade of the German automaker's credit rating. The world's fifth-biggest carmaker, battling to return its U.S. Chrysler unit to long-term profits, posted a third quarter operating profit of 1.25 billion euros ($1.46 billion), a 19 percent drop from a year ago and below analysts' expectations. Shares in the group, which has yet to reap the rewards from its 1998 merger, were down 2.79 percent at 11:58 a.m. EDT, lagging the sector.

They fell sharply after credit rating agency Standard & Poor's cut Daimler's long-term corporate credit rating to BBB from BBB+ and assigned it a negative outlook.

"Although DaimlerChrysler continues to be well positioned in the global luxury and commercial vehicle markets, the risks posed by Chrysler have a significant effect on the overall credit profile of DaimlerChrysler," said S&P.
Equity investors also focused on north America. "The numbers show they (still) have some problems and the problem is the U.S. market, concerning Chrysler," said Martin Sachsenmaier, a fund manager at Frankfurt Trust.

DaimlerChrysler, whose brands include Mercedes, Jeep and Freightliner, said it anticipated a gradual economic recovery in the fourth quarter which should stimulate the auto industry. The company still aims to post a full-year operating profit of about five billion euros, down from 5.8 billion euros in 2002, but said "significant market risks" remained.

Its stock has lost over two thirds of its value in the five years since the merger of Germany's Daimler-Benz and Chrysler, then the most profitable U.S. carmaker.
Bureau Report