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DC Cuts 13K Jobs--And Seeks New Partner?


 

 

The news from DaimlerChrysler is turning out to be far more extensive than originally anticipated, as the automaker announced huge losses, set in motion job cuts that will reach 13,000 -- well above the expected 10,000 -- and reveals that its "far-reaching strategic options" could include lining up an outside partner for its troubled Chrysler Group.

Prior to today's annual meeting held at Chrysler headquarters, in Auburn Hills, Michigan, DCX reported its total corporate profit dropped 40 percent, to $749 million, or 577 million Euros, largely due to the problems at its U.S. unit. Revenues, meanwhile, slipped two percent, to $53.7 billion, or 40.66 billion Euros.

Chrysler is making huge cuts -- as TheCarConnection.com earlier reported -- 13,000 in all, including 2,000 salaried workers. That 16-percent reduction will largely be felt in the U.S. Chrysler will close its under-utilized assembly plant in Newark, Del., and will cut a shift at its plants in Warren, Mich., and St. Louis.

In doing so, Chrysler will reduce capacity by 400,000 vehicles annually.

What came as a surprise was the statement DCX filed with the German stock exchange on Wednesday morning, in advance of its board's final decision on the Chrysler turnaround plan. It revealed that management is considering "other, more far-reaching strategic options with partners in order to support and facilitate the program."

"We need to increasingly leverage partnerships and alliances," declared Chrysler Group CEO Tom LaSorda, during a Wednesday news conference, "to take advantage of new and emerging segments.”

Exactly what those options are isn't clear but, “We do not exclude any option to find the best solution,” hinted DCX CEO Dieter Zetsche during the Wednesday news conference.

The news is likely to kick off several lines of speculation. For one thing, Carlos Ghosn, the CEO of both Nissan and Renault, has said repeatedly he would like to expand that alliance partnership, preferably with a U.S. affiliate. A proposed deal with General Motors collapsed last year.

Separately, as TheCarConnection.com has reported, inside sources indicate a possible management buy-out of the Chrysler Group has been examined with unnamed investors.

Yet another alternative might be a role for Chinese alliance. Chrysler recently announced it will use a Chinese partner to help produce a new small car, one the U.S. maker said it could not profitably build here in the States.

While cost and headcount cuts are essential and core to the Chrysler turnaround program, LaSorda made it clear that his company must also regain its competitive edge in the car and truck market. It will expand its product offerings, he said, even while consolidating the number of vehicle platforms and engine families. The group will, for example, cut the number of V-6 engines it offers from four to one. Total platforms will be reduced from 12 to seven by 2012, leaving Chrysler with three front-drive platforms, two rear-drive platforms and two body-on-frame platforms.

There will be a greater emphasis on high-mileage car, rather than fuel-thirsty trucks. And it appears Chrysler intends to realign its U.S. dealer network, which likely means fewer but more profitable showrooms.

"We're looking in the neighborhood of 10 or 15 percent" fewer dealers, said LaSorda.

LaSorda also emphasized the need to be "less North American-centric" and put more emphasis on expanding Chrysler's global markets.

How quick things will turn around is unclear, though LaSorda acknowledged, in an answer to TheCarConnection's question, that Chrysler group will again lose money in 2007, “but it will be less of a loss than it was in 2006.” The goal, by 2009, is a 2.5 percent return, but that is still barely a third of what the rest of DCX is already achieving.

Wednesday's announcements put a harsh spotlight on DaimlerChrysler chairman and CEO Dieter Zetsche, who was tapped in 2005 to run the company in large part because of his turnaround of Chrysler Group. But in light of the company's renewed problems, Zetsche, who is back at Chrysler headquarters to deliver the company’s year-end earnings and outline his second comeback plan in six years, many are left asking, “What turnaround?”

With the losses in 2006, combined with losses in 2001 and 2003, all the profit posted by Zetsche at Chysler has been wiped out. That essentially leaves the work of the last five years as a financial exercise of treading water despite cutting 42,000 jobs so far and shuttering more than a dozen plants.

 

Chrysler, in 2005 and early 2006, appeared healthier than Ford and GM. But later it was learned that the company was over-producing unpopular vehicles, sitting them in empty lots until dealers ordered them, and jacking up incentives to the highest in the industry. Chrysler ended up losing a half-point of market share last year and cut North American production by 10 percent, according to Ward's Automotive reports.

 

Not all the news from DCX was bad. The company actually posted a modest increase in full-year 2006 earnings, which climbed to $4.26 billion, or $4.17 a share, up from $3.76 billion, or $3.70 a share, in 2005. Even so, vehicle sales slipped to 4.7 million last year, down from 4.8 million in 2005.

 

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