USA/GERMANY: Chrysler Group to cut 13,000 jobs, faces possible sale

Chrysler Group unveiled a new restructuring and recovery plan that includes cutting 13,000 jobs in the U.S. and Canada. DaimlerChrysler raised the prospect of parting ways with its loss-making U.S. Chrysler arm Wednesday (February 14) , a move that could unwind a blockbuster 1998 merger creating the world's fifth-biggest car maker. It also laid out a dramatic restructuring plan for Chrysler that includes cutting 13,000 jobs -- around 16 percent of the workforce -- and closing two sites as it shifts more focus to rolling out fuel-efficient cars at a time of high fuel prices. The plan will trigger a 2007 restructuring charge of up to 1 billion euros ($1.31 billion) but aims to return Chrysler to profit in 2008 and generate a 2.5 percent margin by 2009. Chief Executive Dieter Zetsche explained the effort to bring Chrysler back to profitability. "The tough competition and the adverse market conditions made it necessary to accelerate and expand the operational improvements implemented during the last years. The recovery and transformation plan is designed to improve both cost position and revenue side of the business and we are therefore convinced it will lead the Chrysler Group back to profitability. But Zetsche added Chrysler would also explore strategic options with new industrial partners. "In addition to that and in order to optimize and accelerate the present plan, we are looking into further strategic options with partners. . . In this regard we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler," he said. The statement echoed an earlier company release. News of Chrysler's strategic review sent the group's stock up more than 5 percent to its highest level since June 2002. It also plunges Chrysler into the maelstrom that has swept up Detroit rivals General Motors Corp and Ford Motor Co as they cut thousands of jobs and close plants to reflect falling U.S. market share amid an onslaught by Asia competitors. Thomas LaSorda, the CEO and President of Chrysler Group outlined the cost-cutting measures planned. "Here are the key measures we're implementing for our recovery and transformation plan through 2009. We'll be reducing assembly capacity by 400,000 vehicles through year, through shift reductions, idling of one plant and a parts distribution centre plus corresponding actions in power train and component facilities. The Chrysler Groups' total workforce will become smaller by 13,000 employees. We will aggressively pursue global market opportunities with low cost sourcing." The announcement at the news conference in Aurora Hills was a departure from the group's clear statement as recently as October that Chrysler was not for sale. John Casesa, Managing Partner of Casesa Strategic Advisors, said an analysis of Chrysler's poor results for 2006 were a factor behind Wednesday's announcement. "The main message in this announcement is that the poor results in Chrysler in 06 seem to be a catalyst for a momentous strategic decision for DaimlerChrysler and it seems to me the signal this management sent today is that it's leaning toward separation instead of integration and actually undoing that 1998 merger - seems hard to believe but the world's changed a lot since 98. And there's a new CEO at this company," he said. Casesa, noting the CEO at DaimlerChrysler had changed since the 1998 merger - and Zetsche may not feel as strongly about keeping the partnership together. The stock peaked at 52.08 euros and was up 4.4 percent at 51.39 euros by 1430 GMT, while the DJ Stoxx European car sector index gained 2.3 percent. DaimlerChrysler unveiled its latest restructuring plan for Chrysler almost six years to the day after its first attempt at shoring up profits from across the Atlantic. Zetsche ran Chrysler until taking the top spot in Stuttgart last year. Although growing ranks of shareholders would like to see Chrysler go, selling it is easier said than done. Bank Sal. Oppenheim analyst Michael Raab estimates it would cost 26 billion euros to separate the two businesses. A real stumbling block is around 18 billion euros in unfunded pensions and healthcare liabilities for retired workers that any buyer would want financed in full, analysts say. In Frankfurt, Fidel Helmer of Hauch & Aufhaeuser private banking told Reuters Television "the reorganisation costs which Daimler obviously already thought about are said to be up to one billion euros." "I do not think that someone would be interested in Chrysler in the short term. I think it should be clear that the urgent reorganisation within Chrysler initially costs more money," Helmer said. Meanwhile, DaimlerChrysler declined comment on a German magazine report that it was in talks to sell its loss-making Chrysler division to General Motors. Germany's Manager Magazin cited company sources as saying the talks were in full swing but still at an early stage. Ferdinand Dudenhoeffer, arguably Germany`s best-known car industry expert, told Reuters in an interview that "I can't imagine a cooperation, a takeover or a merger between Chrysler and General Motors." "General Motors had a very hard time with takeovers and mergers over the past few years," Dudenhoeffer said. "Let's just recall the big adventure with FIAT which was a failure. General Motors is going through rough times themselves. They have to consolidate themselves," Dudenhoeffer said. He is a professor and the director of CAR, the Gelsenkirchen-based Centre of Automotive Research.

ITN Source | February 15, 2007

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