Chrysler Moves to Slash Material Costs

DaimlerChrysler’s struggling Chrysler group has unveiled a plan to cut material costs by $6 billion, or 15%, over the next two years.

The move, disclosed Thursday, was described as the first element in a comprehensive restructuring plan aimed at reducing overall spending. It comes nearly three weeks after the German auto maker installed new management at its ailing U.S. unit.

The plan calls for Chrysler’s nearly 900 suppliers to cut the prices they charge for materials and all general services by 5%, or $2 billion, effective Jan. 1.

The second phase of the initiative calls for Chrysler engineers and procurement managers, along with suppliers, to identify an additional 10% cost improvement, saving another $4 billion.

Chrysler officials said they told 20 of the auto maker’s largest suppliers of the decision Thursday and they will meet with another 150 suppliers before the end of the month.

Although some suppliers have vowed to work with the auto maker, others are wary of simply paying for Chrysler’s improved profit.

Chrysler officials are trying to cut costs to get the once-profitable unit back on track. Chrysler has gone from being the most profitable car maker to being one of the least, losing $512 million in its third quarter with expectations for a repeat of that or worse in the fourth quarter.