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Published: Saturday, 12/9/2000

Price cut demand sinks Dana stock

Dana Corp. was not stunned when DaimlerChrysler AG, the Toledo parts maker's second largest customer, demanded an additional 1 to 2 per cent in cost reductions from auto suppliers as the industry heads into a slowdown.

Various automakers have plagued Dana and other suppliers with annual price cuts in recent years. On Thursday, DaimlerChrysler's financially troubled U.S. unit - now under German management - unveiled a plan to cut costs by $6 billion over two years that calls for a 5 per cent reduction in supplier prices effective Jan. 1.

“We're going to work with them as we've been doing,” said Dana spokesman Gary Corrigan. “Chrysler's not the only one that wants reductions. ... There is no one that wants less [than 5 per cent].”

Wall Street shuddered yesterday at the prospect of more price reductions, sending Dana's stock into a new 52-week low. Dana's stock closed yesterday at $15.38 a share on the New York Stock Exchange, down 50 cents.

A consensus of 15 analysts polled by Zacks Investment Research of Chicago expects Dana to have $2.79 a share in earnings this year, down from $4.08 a share in 1999. Joseph Phillippi, an analyst with UBS Warburg in New York who like many others has a “hold” rating on Dana's stock, recently reported he expects Dana's annual earnings will be $2.75 a share this year and $2.50 a share next year.

Dana has laid off or eliminated the jobs of about 3,500 employees as its third-quarter profits plunged 82 per cent from a year ago to $29 million. More Dana layoffs will be necessary if DaimlerChrysler - which is shutting down Toledo Jeep Assembly and other assembly plants for part of December to reduce inventories - continues to idle plants, Dana's Mr. Corrigan said.

Dana expects markets for both passenger vehicles and commercial trucks will pick up in the second half of 2001, Mr. Corrigan said. No one in the auto sector, meanwhile, has been spared from price cuts, he said.

“Everyone has profits down,” Mr. Corrigan said. “From a profit standpoint, I'm not hearing anyone celebrating.”

Mr. Corrigan declined to specify how much of a price reduction DaimlerChrysler's U.S. side has asked Dana for in past years for products including axles on Toledo-made Jeep Wranglers and Cherokees. The German automaker accounted for 14 per cent of Dana's sales last year, or $1.7 billion, topped only by Ford Motor Co.'s $2.1 billion.



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