Chrysler Cuts Will Bind It More to Benz

DaimlerChrysler intends to tie together the company’s German and American wings more tightly than ever under the new plan for reviving the fortunes of the ailing Chrysler Group.


The Detroit News, followed by the Financial Times, reported the rescue plan would include greater use of common components and systems by both the Chrysler Group and Mercedes-Benz Group. The use of common components has been a contentious issue since the merger was first proposed in 1998 but it has gradually become more acceptable as both groups have faced intense cost pressures.

The Wall Street Journal also reported more common platforms will be developed – citing, in particular, the new plan to merge the Dodge Durango, Jeep Grand Cherokee, and Mercedes ML-Class into one product architecture.


The plan could move Chrysler and Mercedes-Benz closer than ever to sharing of engineering platforms, engines, and transmissions, though company officials continue to insist nothing will be done to compromise the identity of the company’s core brands, particularly Mercedes-Benz.

The move, however, could make it harder in the future to separate the two groups if dissident shareholders ever gained the upper hand and called for spinning off the Chrysler Group.

In recent weeks, reports have circulated throughEurope again that DaimlerChrysler was thinking of spinning off the Chrysler Group to boost the price of the company’s stock.

The rumors reflect the sentiments of a vocal group of German shareholders, including some institutional shareholders, which have been opponents of the 1998 merger that created the German-American automaker. Roughly 80 percent of DaimlerChrysler's outstanding common stock is owned by German citizens and institutions. Dissident German shareholders, in fact, were instrumental in forcing Juergen Schrempp, then DaimlerChrysler chairman, to back out of a merger deal with Mitsubishi three years ago.

Meanwhile, Chrysler employees are bracing for another round of cuts on St. Valentine’s Day.

At least three plants now appear vulnerable, including an assembly plant in Newark, Del.; a stamping plant in Twinsburg, Ohio, that feeds parts to the Newark plant; and an engine plant in Detroit that builds V-8 engines. DaimlerChrysler also builds the same engine in Mexico, Chrysler sources said.

DaimlerChrysler managers have been working on the new turnaround plan since the end of October when the German-American automaker disclosed the Chrysler Group had posted an operating loss of $1.5 billion. The loss was blamed on an unforeseen build up of inventory of unsold vehicles that CEO Tom LaSorda and other executives have described as temporary.

As at General Motors and Ford, the plan is expected to include the permanent shutdown of the company's assembly plant in Newark, Del. Both GM and Ford have closed East Coast assembly plants but the Newark plant probably wouldn't close until 2010 under the most recent version of the plan. The end-of-the-decade closing date would give Chrysler time to shift new versions of the products currently built in Newark — the Dodge Durango and Chrysler Aspen sport-utility vehicles — to other Chrysler Group plants and platforms.

Other cuts are also in the works, though in a conversation with reporters in December, LaSorda appeared to rule out employee buyouts similar to those launched by General Motors and Ford last year.

More than 75,000 General Motors and Ford blue-collar workers wound up accepting the buyouts.

DaimlerChrysler also continues to press the United Auto Workers for healthcare concessions. The union rejected the idea of concessions last fall and hasn't shown any indication yet that it is willing to change its position. The union did agree to study DaimlerChrysler's request again but relations between the company and the union have come under stress of late.

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