North America Chrysler Unit to See Layoffs, Plant Closings

DaimlerChrysler is to announce today major plant closings and job cuts at its North American Chrysler operations as part of a restructuring plan designed to stop the financial hemorrhaging that has caused billions of dollars in losses in the last year, sources said Sunday night.

Plant shutdowns are expected in Canada and Mexico, but not in the United States, sources said. “Significant job cuts,” a source said, are expected in the United States, where Chrysler employs 125,000 workers.

The job cuts in the United States had been worked out with the United Auto Workers union, sources said, and both sides hoped that most of the cuts could be accomplished through a new early-retirement program, which also is to be announced today. Sources would not reveal how many jobs the cutbacks would involve.

If enough UAW members reject early retirement, the company would be forced to lay off workers under the economic clause of the UAW contract. Laid-off workers would receive 95% of their base pay for the length of the contract, which expires in 2003.

The U.S. cuts would primarily involve reducing three shifts of production to one shift or two shifts in an effort to keep the plants open for a hoped-for turnaround in auto sales. Industry sales in 2000 were a record 17.8 million vehicles, but the projection for 2001 is 15.3 million.

Chrysler has been losing money since shortly after it was bought by Daimler-Benz in 1998. The situation reached crisis proportions early last year after the company put large financial incentives on its cars and trucks to boost its share of the North American market. The effort failed, and the financial losses escalated. By the end of last year, the problem had become so acute that Daimler replaced Chrysler’s top U.S. management team with executives from the parent company in Germany, ending all illusion that the merger with Chrysler was a marriage of equals.

DaimlerChrysler Chairman Juergen Schrempp has come under intense pressure from the company’s board to quickly fix the problems at Chrysler. Although Schrempp said a turnaround could take three to five years at a cost of $1 billion or more in losses, there have been indications that the board wants to see results quicker, perhaps in the next six months.

The company has already cut its five-year budget for developing new vehicles in the United States from $48 billion to $36 billion. The company has canceled plans for a new, bigger sport-utility vehicle, a high-performance convertible and the development of a new Neon, Chrysler’s main entry in the small-car market.

The plan being announced today is to be presented to the DaimlerChrysler board in Stuttgart, Germany, for approval next month.

DaimlerChrysler is expected to report a loss for the fourth quarter but won’t announce its results until Feb. 26, when the board receives the restructuring plan.

Separately, Associated Press and BusinessWeek reported during the weekend that Chrysler also planned to slash hundreds of millions of dollars in advertising and showroom subsidies to its 4,400 dealers.

The moves, reportedly arranged last week between Chrysler and its executive dealer council, could save Chrysler more than $500 million, according to unnamed sources. The cutbacks, many of which take effect this week, were less severe than the company had first planned after dealers, troubled by some of the initial steps, were allowed to suggest counterproposals.