DaimlerChrysler AG, moving to cut costs at its struggling Chrysler unit, unveiled a plan to slash 26,000 jobs, including as many as 950 at the company’s plant in Belvidere.
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The big cuts have been ordered up because, to the dismay of its German corporate parent, Chrysler has been harder hit by the recent auto industry weakness than rivals General Motors Corp. and Ford Motor Co.
“The market out there is deteriorating, and our company performance even more so,” said Dieter Zetsche, Chrysler’s president and chief executive. Zetsche was installed in the top job at Chrysler just two months ago in a management shakeup that followed on the heels of a huge third-quarter loss at Chrysler.
Chrysler hopes to eliminate jobs through attrition and by offering early retirement in an effort to “minimize the impact of potential layoffs,” said Chrysler spokesman Trevor Hale. If layoffs are required, those laid off would get 95 percent of their take-home pay through the end of Chrysler’s contract with the United Auto Workers union, which expires in December 2003.
At the 3,100-worker Belvidere plant, which produces the Neon compact car, Chrysler plans to eliminate one of two production shifts. That belt-tightening measure will be in place by July, the company said. In Belvidere, the town’s mayor and some workers said they were relieved the plant wasn’t being shut entirely.
“In the auto industry, you have your ups and downs,” said Bill Morris, a 28-year employee at the plant. “You have your good years and bad years–it comes with the territory.”
Chrysler has launched an effort to squeeze savings from its suppliers. But on Monday, Zetsche spelled out plans to cut about 19,000 jobs from Chrysler’s 95,000-person hourly workforce and trim 6,800 positions from among about 25,000 salaried employees.
Zetsche’s plan calls for Chrysler to throttle back production by idling six manufacturing plants outright and reducing output at several others. The job cuts are designed to help the company gain control of bloated costs, Zetsche said, and to make Chrysler more nimble in an increasingly turbulent auto marketplace.
“No one wants this to happen,” Zetsche said. “The markets are shrinking, competition is brutal, we are under pressure from imports and an incentive war is on.”
Chrysler, based in Auburn Hills, Mich., combined with Germany’s Daimler-Benz AG in late 1998, to create DaimlerChrysler. The merger, made at a time when industry demand was running at record levels, left Stuttgart-based Daimler firmly in the driver’s seat of the combined company. But it hasn’t yielded the hoped-for benefits, critics say.
“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” as the industry’s fortunes sag, said David Healy, an analyst with Burnham Securities. “Now, surgery is necessary to save the patient.”
As auto sales have weakened in response to higher interest rates and other factors, carmakers have increasingly relied on profit-busting incentives, such as low financing and cash rebates, to move their products off dealer lots. Chrysler has been steadily losing U.S. market share, even though it’s been among the leaders in such inducements.
The company said Monday it expects to make about three-fourths of the overall job cuts during the current year, with the rest to come in 2002 and 2003.
Chrysler has “a good chance” of achieving its cuts without major layoffs, said Bank One economist Diane Swonk, noting that the company’s latest contract with the United Auto Workers contains so-called “golden handshake” provisions that “make it very attractive [for auto workers] to take early retirement. “
If that proves to be the case, Swonk said, Chrysler’s cost-cutting move will be a “kinder, gentler form of downsizing than we’ve seen in the past.”
In a reflection of the extent to which contractual agreements tend to shield U.S. workers, Chrysler is mainly targeting non-U.S. facilities for shutdown. One Detroit engine plant is set to close, with its production being shifted to two other sites. And in addition to the Belvidere plant near Rockford, Chrysler plants in Detroit, Toledo, Ohio, and Newark, Del.–along with three Canadian facilities–also will scale back output.
In contrast, three facilities in Mexico will be completely closed, as will plants in Argentina and Brazil.
Since many offshore sites have lower production costs, Chrysler is being shortsighted in focusing its closures abroad, argued David Garrity, an analyst with Dresdner Kleinwort Benson. “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.
UAW officials couldn’t be reached for comment on Chrysler’s plans.
Zetsche said he disclosed the job cuts Monday in response to widespread speculation among the company’s workers and because Chrysler doesn’t want to delay taking action until the full plan is unveiled next month.
In New York Stock Exchange trading Monday, DaimlerChrysler shares closed off 95 cents, at $47.29. That price is well below the $65 level the stock commanded a year ago, but Chrysler shares have bounced back from their late-November low of $37.75.
In Belvidere, Mayor Fred Brereton chose to look on the bright side of the company’s job purge. “If things improve, it’s a lot easier to step up capacity at an operating plant than at a closed plant,” Brereton said.
Much worse rumors had been spreading locally, Brereton said, including a complete shutdown of the Belvidere plant.
Brereton said the area’s economy is strong and would likely weather this downturn. Business is good in Belvidere, he said, and there are few empty shops along the recently redeveloped State Street.
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Morris, the longtime Belvidere plant employee, said he found getting the word in a phone call from a supervisor Monday morning encouraging, saying Chrysler had not done a good job of communicating such news in the past.
Morris, 47, a forklift operator, said his seniority would protect him this time and that many employees expect the plant to shut operations regularly.
In fact, the Belvidere plant is currently in the middle of a three-week shutdown, time which Morris took advantage of to take a trip to Jamaica, he said.
“Everyone likes a little time off this time of year,” he said over a beer at the Backstop Bar and Grill, a Chrysler employee favorite. “I like time off as much as anybody but not too much.”
Joan Sveda, manager of the nearby Hair For Me beauty shop, believes that the elimination of a shift at the plant wouldn’t have too big an impact on local business. She said the impact of other layoffs, such as those at Motorola Inc. and Ingersoll-Rand Co., might be felt stronger.
“My concern isn’t just with Chrysler, it’s with the whole economy,” she said.