DaimlerChrysler AG (NYSE: DCX) rode record revenues from its automotive businesses to its highest year-end income ever! (Repeat that with your best late-night-TV-ad voice.) Sales in the Mercedes-Benz division rose 17% to $38.4 billion in 1999, while the Chrysler Group ramped up 13.6% to $64.5 billion. Driven by improvements in operating efficiency, the company's operating profit grew 20% to $10.4 billion, excluding extraordinary charges related to the divestiture of its stake in Debitel communication services. Adjusted earnings per share (EPS) for 1999 arrived at $6.25, compared to $5.62 in 1998, up 11%.

Fourth-quarter sales delivered the boost Daimler needed to reach these fine results. Revenue rose 20% for the quarter, but a 37% increase in operating profits propelled quarterly EPS up 30% to $1.60 vs. $1.23 in 1998. In the Chrysler Group alone, 25% higher revenues produced an 85% increase in operating profits.

Note that all dollar figures are based on a Euro-to-U.S. dollar exchange rate of 1.007, the effective rate on Dec. 31, 1999, the final day of the company's fourth quarter. Conversion rates caused some confusion when it came to the all-important task of comparing results to analysts' estimates. First Call had listed its estimate for the quarter as $1.76, but Daimler management assured investors in the conference call that the dollar figure was based on an estimate of 1.54 Euro, or about $1.55 at the company's conversion rate. If you care about such things, then Daimler beat the analysts' estimates, despite some published reports.

Daimler's results complete the trifecta for the big auto makers in 1999. General Motors (NYSE: GM) and Ford Motor Co. (NYSE: F) both saw sales rise over 13% for the year to all-time highs. GM sold 7.5% more cars in 1999 than 1998, Ford 5.8%, while Daimler beat them both with 8.9%. Operating and net margins improved at all three companies. Detroit (pace Stuttgart) appears to be firing on all cylinders.

Still, none of these companies is cruising on Wall Street. GM has trailed the market over the last year, gaining about 6%, while Ford has been ridden down 41%. Since last year's results came in, Daimler has lost 33% of its value. Click here for a chart of the sector's relative performance.

So what's the problem with Daimler? It's not a dearth of cash. Free cash flow exceeded $4 billion, and that number was lower than expected due to a 4 billion Euro contribution to the company's pension fund. Daimler still has over $18 billion in cash on hand, some of which the company hopes to use to buy back 10% of its shares. The current dividend of 2.35 Euros per share, which is one of the highest in Europe, produces a 3.6% yield, compared to 2.5% for GM and 4.6% for Ford. Management also refuses to blame rising fuel or exchange rates for the stock's underperformance.

The problem, in a nutshell, seems to be the sector. Sure, net margins for the Big Three are increasing, but they range from 3.2% to 4.5%. Not exactly eye-popping. In a market where many companies with no inventory, factory, or unionized employees regularly produce 50% or better operating margins, the auto industry looks as heavy as homemade German Rye bread.

With today's numbers from Daimler, however, investors might want to think about taking a bite.

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