Weekly News: March 5, 2001

March 5, 2001

DAIMLERCHRYSLER ANNOUNCES RESTRUCTURING PLAN DaimlerChrysler revealed some specifics of its three-year, $3.09 billion company-wide restructuring plan. The plan will see a total of 35,500 jobs cut, in an attempt to bring Chrysler, and also Mitsubishi, to profitability by 2003. DaimlerChrysler put future model introductions for the Dodge Ram pickup and Jeep Liberty SUV high on the list, along with platform consolidation with Mitsubishi. A new "automotive council" will oversee all automotive and commercial vehicle operations, including the merging of platforms and sharing of components between Chrysler, Mitsubishi, and Mercedes-Benz. The company also announced yearly earnings for 2000, down 49 percent to $4.9 billion. The Chrysler Group alone reported a 90-percent drop in earnings last year and is expected to lose up to $2.34 billion this year.

MITSUBISHI DETAILS CUTS In Tokyo, Mitsubishi detailed massive cuts to its operations as part of the DaimlerChrysler turnaround plan. President Takashi Sonobe and chief operating officer Rolf Eckrodt announced that the plans include laying off another 9500 workers (about 14 percent of the total workforce), reducing production capacity by at least 20 percent, cutting the number of platforms, achieving a 15-percent cost savings through a common-supplier system, and changing the company's management structure. The company also announced the immediate discontinuation of two Japan-only luxury models, the Proudia and Dignity. Management-structure changes will be announced April 1.

GM SUES CARB General Motors is suing California's Air Resources Board, claiming that new zero-emissions vehicle quotas ignore other more cost-effective measures. The automaker stated that the rules would lead to vehicles that consumers don't want, and vehicles that endanger drivers due to their compact size. Ford Motor Company has stated that it is willing to comply with the new regulations, which would require only 4650 electric vehicles to be sold by the industry in California.

FEB SALES DOWN, BUT BETTER THAN PREDICTED U.S. automakers continued to report declines in February sales, versus February sales last year, although the drops were not nearly as large as anticipated. Overall U.S. vehicle sales for February were at a seasonally adjusted rate of about 17 million vehicles, down more than eleven percent from last year's figure of 19.2 million. GM, Ford, and Chrysler reported sales down ten, eleven, and ten percent, respectively. Analysts had previously predicted a greater February sales plunge for the Big Three, with predicted drops for GM, Ford, and Chrysler will fall by 16.5, 15, and 21 percent, respectively, versus a year ago. Toyota, Honda, Mazda, and several other import brands reported sales up in February.

GM GIVES ISUZU DEADLINE TO GET OUT OF THE RED General Motors recommended that Isuzu Motors take "radical actions" to bring the company back to profitability no later than the fiscal year ending March 31, 2002. GM attributed a $97 million loss in the fourth quarter to its 49-percent ownership in Isuzu. The Japanese company makes commercial trucks and sport-utility vehicles. U.S. sales of Isuzu SUVs were down 5.6 percent last year.

FLORIDA FINES MITSUBISHI The state of Florida has fined Mitsubishi Motor Sales of America $275,000 to penalize the company for falsified sales reports. The company will also be put on probation for four years. After an Automotive News investigative report in September, Florida's attorney general's office investigated the allegations of false sales of vehicles still in dealer lots to fictitious names. The Florida office found that 301 out of 1070 sales checked were false. Mitsubishi has agreed to adopt new checking procedures and open sales records to the state in the future. According to an Automotive News follow-up report, though, a former district sales manager testified that Mitsubishi had ordered sales managers to do whatever was needed to meet quotas.

FINANCIAL AGENCIES LOWER DC'S RATING Several prominent U.S. financial rating agencies lowered DaimlerChrysler's credit ratings Monday, following the company's restructuring plan announcement. Moody's Investors Service and Standard and Poor's downgraded the company due to long-term concerns about the company's financial performance. The new ratings, which will make it more difficult for the company to borrow money, are considered one notch below those of rival automakers General Motors and Ford Motor Company.

FEDERAL-MOGUL LAYS OFF 1100 Supplier Federal-Mogul is cutting about 1100 salaried workers due to the industry slowdown and lagging financial obligations. About 600 hourly workers will also lose their jobs due to plant closures in California, Mississippi, North Carolina, and Ontario. The company has found it difficult to recover financially after having to pay former workers settlements for asbestos exposure in the workplace.

SUPREME COURT UPHOLDS EPA RULES The U.S. Supreme Court has ruled against an industry protest that the Environmental Protection Agency was not considering financial costs in its air-quality standards as set by the Clean Air Act and recent changes to the air-pollution requirements. The industry groups, led by the American Trucking Association, claim that the agency's interpretation of the law was not reasonable. The Supreme Court ruled that costs in the matter were irrelevant, as the Clean Air Act specified the minimum adequate protection for public health.

MITSUBISHI CROSSES THE BORDER Mitsubishi is finally planning to fully expand its sales network into Canada. The new division, called Mitsubishi Motor Sales of Canada, will be overseen as a subsidiary of Mitsubishi Motor Sales of America. Canadian customers will be able to buy the same models as U.S. customers. Mitsubishi aims to open 150 dealerships over five years, with 51 to open in the first year. The automaker is projecting a two-percent share of the Canadian auto market by 2007.

GM CONFIRMS RUSSIAN JOINT VENTURE General Motors has finally confirmed a $332 million joint venture to build sport-utility vehicles in Togliatti, Russia. The venture, with AvtoVAZ, will produce a Chevrolet-badged version of an updated Lada Niva. GM suggests that it is a good brand-building opportunity. Russian officials had confirmed the venture several weeks ago, while GM continued to deny it. The initial agreement calls for a production volume of 75,000 vehicles.

MANY INTERESTED IN MAZDA'S EARLY RETIREMENT Mazda has announced that 2213 Japanese employees have taken advantage of the automaker's offered early retirement package, exceeding the company's target of 1800. Mazda will take a one-time loss of $294 million to accommodate the retirements, which will go into affect March 30. As part of Mazda's plan to become profitable again, the company's board members have said that they will take a ten-percent cut in pay.

CLEAN DIESEL RULE APPROVED The United States Environmental Protection Agency (EPA) has announced new rules to cut diesel pollution in heavy trucks and buses by 95 percent starting in 2006. The announcement is a pleasant surprise to environmentalists, who doubted that the new regulations would go through with the Bush administration. However, the new regulations, which would phase in diesel fuel with greatly reduced sulfur content, have the support of General Motors and other automakers who want to bring diesel cars and diesel hybrids to market to help meet fuel-economy requirements. Oil refiners have protested the new rules, which would reduce the sulfur content in the fuel from the current 500 parts per million (ppm) to 15 ppm. The rule was compromised slightly for the industry with a phase-in period through 2009.

KERKORIAN CUTS DC STOCK Prominent investor Kirk Kerkorian has reportedly cut his stake in DaimlerChrysler to about one percent, according to Reuters. Last year, Kerkorian's share of the company was at more than four percent. In January, following comments chairman Jeurgen Schrempp made to the Financial Times saying that the DaimlerChrysler "merger of equals" was actually a takeover, Kerkorian reduced his share of the company to just over two percent. Kerkorian is waging a lawsuit against the German company, accusing top management, including Schrempp, of masterminding a takeover that misled Chrysler shareholders.

NISSAN AGREEMENT RELIES ON DISPLACING RESIDENTS Nissan's plans to build a truck assembly plant near Canton, Mississippi, have been complicated. According to reports, Nissan was relying on the state to seize the land from people who currently lived on it, and six of the 20 owners who live on the tract of land are refusing to sell their land. The state of Mississippi, who negotiated the deal with Nissan before they had secured the land, claims that the law of eminent domain will secure the land "for the public good." Opponents say that the law is made to secure rights to roads and parks, not factories.

KLUG NAMED FORD MARKETING HEAD Ford Motor Company has named Jan Klug to its post of vice president, global marketing, replacing Jim Schroer, who recently left the company to take the top sales and marketing position at Chrysler. Klug will be in charge of positioning Ford's eight brands in the world market, and she will also be in charge of marketing research and dealer training programs.

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