BERLIN - DaimlerChrysler AG said on Wednesday a tougher business climate this year will make it harder to raise profits as planned, despite encouraging signs in the first quarter.
The world's fifth-biggest carmaker, two thirds of the way through a three-year overhaul at its U.S. Chrysler unit, said in February it aimed to lift its adjusted operating profit this year from last year's level of 5.8 billion euros ($6.14 billion), provided economic conditions remained stable.
"It has become much more difficult to reach the targets we have set ourselves... nonetheless we will make every effort to achieve them," Chief Executive Juergen Schrempp told shareholders at the group's relatively subdued annual meeting attended by about 8,500 investors.
"Obviously not everything always works to perfection... the environment will remain very challenging for us this year," said Schrempp.
Weak economic conditions and subdued consumer sentiment have dampened demand for vehicles in Daimler's most important markets of the U.S. and western Europe and industry experts say the war in Iraq has increased uncertainty about this year's outlook.
Shares in DaimlerChrysler have fallen about 4 percent so far this year, outperforming the European autos index, which has lost about 12 percent.
But the stock has lost two thirds of its value since the 1998 merger of Chrysler, then the most profitable U.S. carmaker, and German industrial jewel Daimler-Benz, hailed by the company as a "merger made in heaven."
The share fall has angered some shareholders.
The maker of luxury cars, trucks and buses said its forecast was based on the assumption that the war in Iraq would be concluded soon and that there would be no more factors that might have a harmful effect on the world's economies relevant to DaimlerChrysler's business.
PSA Peugeot Citroen said on Tuesday it expected demand for cars in western Europe to fall about 2 percent this year, the lower end of an earlier forecast, due to the war.
Pricing pressure and incentives on vehicles also are expected to hurt carmakers' revenues and profits, especially in the United States where Chrysler is the third biggest player.
The group said Chrysler had stepped up its efforts to cut costs in a bid to meet its $2 billion operating profit target this year, a goal most investors view as ambitious.
Chrysler has reaped the rewards of deep cost cutting and returned to profit earlier than expected in the first quarter of last year but the momentum had slowed by the fourth quarter as marketing costs ballooned. Chrysler posted an adjusted operating profit of 1.3 billion euros for the whole of 2002.
The Chrysler overhaul included a 20 percent cut in the unit's workforce and price reductions from suppliers, which analysts have praised for putting the unit on a firmer footing.
"We are not expecting a blow-out, but compared to its U.S. rivals Chrysler is in a position of relative strength at a time of lingering uncertainty," said one London-based analyst whose bank has a "neutral" rating.
General Motors and Ford have been even more aggressive than Chrysler in using incentives to defend market share from Japanese companies who have been extremely successful amid falling demand.
DaimlerChrysler said its luxury Mercedes unit, expected to post flat profits this year, had made a good start to the year and its trucks division had held up well.