Chrysler to Cut 26,000 Jobs and Close 6 Factories
Moving quickly to stem deepening losses, Chrysler’s new German management team said Monday that it will eliminate nearly 26,000 jobs, or 20% of its work force, and shutter six factories over the next two years.
The announcement took industry observers by surprise because it comes a month before Chrysler Group CEO Dieter Zetsche was to present his restructuring plan to DaimlerChrysler shareholders Feb. 26 in Stuttgart.
The job cuts, to be spread over three years, will affect 19,000 hourly and 6,800 salaried employees through a combination of retirements, special incentives, attrition and layoffs, Zetsche said, adding that he expects 75% of the reduction to take place this year.
The factories to be closed this year and next include five engine, transmission and assembly plants in Latin America and one engine plant in Detroit.
“Today’s actions will help remove the uncertainty many of our employees have been feeling,” Zetsche said during a conference call. “Part of this process may be painful for many people. However, to be truly competitive in today’s auto industry environment, we need to be a more nimble company, more closely aligned with current and future market conditions.”
Zetsche, 47, was dispatched by DaimlerChrysler chief Juergen Schrempp to head the Chrysler Group in November, along with Chief Operating Officer Wolfgang Bernhard, a 40-year-old financial whiz who led efforts at then-Daimler-Benz to reduce costs at its bloated Mercedes S-class factory. Bernhard’s sole mandate is to control costs at the Chrysler Group, which consists of the Chrysler, Dodge and Jeep brands. Zetsche oversees product development.
Analysts said the moves were steps in the right direction but more remains to be done to stop Chrysler’s flow of red ink, estimated at $1.7 billion in the second half of last year.
“As far as a cost-cutting strategy, it’s probably as big a bite as they can take without disrupting the business,” said Nicholas Lobaccaro, auto industry analyst at Lehman Bros. in New York. “It’s a bold move and will help with their cost problems, but they have product problems and ultimately need to come out with exciting products like they used to.”
In particular, the new Jeep Liberty introduced this month and the redesigned Dodge Ram pickup, to be unveiled next month at the Chicago Auto Show, will be crucial to Chrysler’s fortunes, Lobaccaro said.
The Liberty sport-utility vehicle is seen as somewhat risky because it is a step up from the Jeep Cherokee it replaces and is a high-cost, features-laden truck in an increasingly crowded market.
David Healy, auto analyst with Burnham Securities, said he did not expect further job cuts any time soon. “I think as far as the employment blood bath goes, that’s probably it for this year,” he said. “But they should go for permanent plant closings, and they’re pretty much kept from that by the labor agreement.”
The current United Auto Workers contract, which runs through 2003, prevents plant closures except in an extreme economic downturn or a catastrophic accident. The UAW was unhappy with the measures announced Monday but accepted them, said a Chrysler source who spoke on condition of anonymity.
“We worked with the union within the current contract,” said Trevor Hale, a Chrysler Group spokesman for manufacturing and labor affairs. “We met with them in very open and frank discussions about options on the table, and we came up with this solution.”
The UAW did not comment publicly on Chrysler’s moves, but Canadian Auto Workers President Buzz Hargrove said in a statement: “We’ll be arguing for strong government action to protect the jobs of Canadian auto workers for the future in the wake of these announcements.”
Monday’s announcement said that this year, three plants in the U.S. and two in Canada will eliminate one work shift, and one plant each in the U.S. and Canada will reduce line speed to cut back on production. The Toluca, Mexico, engine and transmission plant closings will not affect production of the hot-selling PT Cruiser, which is assembled there.
Chrysler’s move is the second-largest job elimination in the auto industry in the last 10 years, according to the job-placement firm Challenger, Gray & Christmas Inc. Chrysler’s cuts stand second only to GM’s massive layoff of 74,000 workers in 1991 when GM faced a profit crisis that resulted in a boardroom coup that installed the current management.
Last month, in an early indication that the new German management team was moving quickly, Chrysler said it would demand 5% price decreases from its suppliers beginning Jan. 1, and an additional 10% reduction over the next two years.
“It’s a significant part of the restructuring,” said Kenneth Blaschke of Deutsche Banc Alex. Brown. “But there’s only so much blood you can drain from the supply base. They also have to decide how to cross over components between Mitsubishi, Chrysler and Mercedes. They really haven’t utilized the potential of cost savings of component sharing.”
DaimlerChrysler owns 34% of Japan’s Mitsubishi Motors. Schrempp said in Detroit this month that although Mercedes was unlikely to share parts with other brands, there was the possibility that the Chrysler Group and Mitsubishi would do so. Other DaimlerChrysler officials have said Mercedes might share limited components such as air conditioners or transmissions with Chrysler.
Chrysler’s losses stem largely from heavy discounts to move aging products such as the current Ram pickup, and even new vehicles such as the 2001 Chrysler and Dodge minivans.
Chrysler is expected to shoulder a multibillion-dollar write-off in the first quarter for restructuring charges and post a loss in 2001, but it could return to profitability by the fourth quarter, Burnham’s Healy said.
Chrysler has struggled financially in the past, most notably in the 1970s when Lee Iacocca negotiated a $1.5-billion federal bailout for the near-bankrupt company.
DaimlerChrysler shares fell 95 cents Monday to $47.29 on the New York Stock Exchange.
