AUBURN HILLS, Mich. —DaimlerChrysler AG's slashing of 26,000 jobs at its ailing Chrysler division stands as the most dramatic sign yet that the 1998 merger of German and American automakers has not lived up to its promise.
“Instead of making the billions of dollars in cost savings and synergies at the time of the merger, they’re making desperate cuts to get Chrysler back in the black,'' said analyst David Healy of Burnham Securities.
Now, he said, “surgery is necessary to save the patient.”
On Monday, the man tapped in November to stem Chrysler’s financial hemorrhaging said the U.S. unit would slash about one-fifth of its work force over three years, as well as idle six plants over the next two years.
“No one wants this to happen. I personally wish it didn't have to happen,” Dieter Zetsche, Chrysler's president and chief executive, said Monday. He called the moves painful but necessary in the face of “brutal” competition, advances by imports and slackened U.S. sales.
“Today is our turning point,” he said.
Zetsche expects a large part of the job-cutting to be done through retirement programs; others will be phased out through layoffs, attrition and other programs.
About three-quarters of the job cuts should come this year, he said.
In addition, production will be curbed at factories in four states and Canada by slowing assembly lines and trimming the number of shifts, ultimately paring production by 15 percent.
DaimlerChrysler chairman Juergen Schrempp has said Chrysler would lose money this year, and that rehabbing the troubled division that pioneered the minivan could take two to four years.
Zetsche already has asked for 5 percent price cuts from Chrysler suppliers.
Chrysler also plans to slash hundreds of millions of dollars in advertising and showroom subsidies to its 4,400 dealers.
Zetsche said Chrysler will unveil its complete turnaround plan Feb. 26.
The overhaul comes about 23 years after Lee Iacocca engineered a rescue of Chrysler, including layoffs and a $1.5 billion government bailout, as the company teetered on the edge of bankruptcy.
Chrysler was restored to health, even becoming the industry leader in per-vehicle
profits. That impressive record was what
appealed to the German automaker as it
sought to further expand in the United
The vaunted 1998 trans-Atlantic
combination of Daimler-Benz and Chrysler
Corp. was touted as a merger of equals. But
last year Schrempp said the company never
intended to be an equal partner with
Chrysler and that he only said that to gain
The comments prompted a lawsuit by
billionaire Kirk Kerkorian, one of
DaimlerChrysler's largest shareholders, seeking to have the deal
reversed on grounds that executives misled investors.
DaimlerChrysler's stock price, now at about $47, has fallen steadily
since reaching a high of $108 in January 1999.
Chrysler's performance hasn't met Stuttgart-based
DaimlerChrysler's expectations, either. Sales incentives have erased
profits and production of the hot-selling PT Cruiser has fallen short
of demand. Daimler and Chrysler also have been reluctant to share
parts to cut costs, which might change with a new emphasis on
Still, DaimlerChrysler has insisted it has no plans to spin off or sell
The job cuts involve 19,000 hourly workers and 6,800 salaried ones.
United Auto Workers-backed Chrysler workers who get laid off will
get 95 percent of their take-home pay under their contract, which
ends in 2003. Employees backed by the Canadian Auto Workers will
get 65 percent of their pre-tax salary as part of their contract, which
expires in 2002.
In a statement Monday night, United Auto Workers President
Stephen Yokich said ``we have been down this road before, and we
are confident that our current contracts with DaimlerChrysler will
provide our members and their families with economic security
during this difficult period.''
Yokich and Nate Gooden, the UAW vice president who heads the
union's DaimlerChrysler unit, plan to attend DaimlerChrysler
meetings next month ``to further ensure that the rights and
interests of UAW-represented workers at Chrysler Group are fully
understood and protected,'' the statement said.
About 22 percent of Chrysler's Canadian workers would lose their
jobs, compared with 18 percent of U.S. Chrysler workers, Canadian
Auto Workers President Buzz Hargrove said.
``For stockholders, it is a blip, but for the workers it is a tragedy,''
Plants slated to be idled include transmission and engine plants in
Toluca, Mexico and assembly plants in Cordoba, Argentina; Lago
Alberto, Mexico; and Parana, Brazil. Chrysler also plans to shift
production from a Detroit engine plant to two other sites.
Production will be scaled back at plants in four states and Canada,
including Detroit; Belvidere, Ill.; Toledo, Ohio; Newark, Del.;
Brampton, Ontario, and two sites in Windsor, Ontario.
In the long run, what matters most is Chrysler's ability to develop
and make vehicles people want, said analyst David Garrity of
Dresdner Kleinwort Benson in New York. He said he was
encouraged that the company was leaving its product development
budget relatively untouched.
Still, Garrity said it was shortsighted for the company to cut
production most in Mexico and Canada, where costs are lower,
while shielding higher-paying U.S. jobs. The Chrysler-UAW
national contract contains safeguards against job cuts.
``You have a company that in some respects had been hamstrung
by the UAW agreement, that has limited their ability to reduce
costs,'' Garrity said.
Last year, Chrysler posted a third-quarter loss of $512 million and
warned that its fourth-quarter loss could more than double that
amid a downturn in the U.S. auto market.
DaimlerChrysler's stock price has fallen steadily since reaching a
high of $108 in January 1999. In trading on the New York Stock
Exchange Monday afternoon, the company's stock was down 95
cents to close at $47.29.
On the Net:
DaimlerChrysler AG: http://www.daimlerchrysler.com
United Auto Workers: http://www.uaw.org
Canadian Auto Workers: http://www.caw.ca