Chrysler Takes Biggest Steps Yet To Slash Costs

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Chrysler Takes Biggest Steps Yet To Slash Costs
November 01, 2007
By Jeff Bennett
Of DOW JONES NEWSWIRES

DETROIT - (Dow Jones) - Chrysler LLC will cut its North American blue-collar workforce almost in half by 2010 as part of the auto maker's most dramatic attempt yet to slash costs and return to profitability.

The announcement Thursday of as many as 10,000 additional hourly job cuts by the No.3 U.S. auto maker, coming amid planned job cuts by General Motors Corp. ( GM) and auto-parts maker Visteon Corp. (VC), signals that restructuring in the U.S. auto industry is far from over as auto makers face a weakening sales environment. Analysts project U.S. auto sales next year to be flat or lower than the 16 million vehicle sales expected in 2007.

The latest cuts by Chrysler go much deeper than industry experts had expected and also greatly expand on the restructuring plan announced in February, after the company reported a $680 million loss for 2006 and was put up for sale by the former DaimlerChrysler AG. Cerberus Capital Management LP bought an 80.1% stake in the U.S. auto maker in August.

"This raises questions on whether there are more problems at Chrysler than what we previously thought," said George Magliano, director of industry research for North America for Global Insight. "Eventually this will make Chrysler stronger, but it will be a smaller company."

Chrysler Chief Executive Officer Bob Nardelli said the "market situation changed dramatically" since the February plan was released. Nardelli, the former Home Depot CEO who was named to the top spot at Chrysler in August, noted that U.S. car sales have slumped throughout the year, and said the sluggishness is expected to continue into 2008.

Cutting Salaried Jobs, Discontinuing Models

The auto maker will trim shifts at five plants resulting in job cuts of between 8,500 and 10,000 hourly workers in 2008. Those cuts are in addition to the 11,000 hourly workers Chrysler said it would cut by 2010, as part of the plan announced in February. The full reduction will slice Chrysler's unionized North American workforce to about 24,000 from 45,000, a 47% cut.

Under the plan, third-shift operations will be eliminated at the Toledo North assembly plant in Toledo, Ohio, and at assembly plants in Belvidere, Ill., and Brampton, Ontario. Second shift operations will be halted at the Sterling Heights, Mich., plant and the Jefferson North plant in Detroit. The Jefferson North plant is slated to return to two shifts in the first quarter of 2010 and a third shift could be added depending on market demand.

Also, Chrysler said it will cut another 1,000 salaried employees. That follows the auto maker's announcement in February that it planned to cut 2,000 salaried workers.

Rounding out Thursday's job cut announcement, Chrysler will chop 37% of its so-called contract workers and eliminate overtime for all employees.

Chrysler is dumping the Dodge Magnum, the convertible version of the Chrysler PT Cruiser, the Chrysler Pacifica and Chrysler Crossfire. Two new vehicles will be launched in the next 14 months, as well as hybrid versions of the Chrysler Aspen and Dodge Durango.

"These action reflect our new customer-driven philosophy and allow us to focus our resources on new, more profitable and appealing products," Chrysler co- President Jim Press said in a statement.

United Auto Workers spokesman Roger Kerson could not be reached for comment on Thursday's job cut announcement. Buzz Hargrove, president of the Canadian Auto Workers, called it "devastating news."

"It has to be obvious to everyone that you can't bargain job security," Hargrove said at a press conference. He said cutting a shift at the Brampton plant would eliminate between 1,000 and 1,100 jobs.

Chrysler's announcement comes five days after members of the UAW narrowly approved a new four-year contract with the Auburn Hills, Mich.-based auto maker. Some UAW local presidents voiced opposition to the agreement, claiming the deal didn't provide enough job security. Chrysler said the new contract committed the automaker to spend more than $15 billion on products and plants through 2011.

Part Of Broader Industry Restructuring

The additional cost cuts at Chrysler are part of an ongoing two-year retrenchment in the auto industry and may signal that more restructuring lies ahead.

"The cuts we have seen by the auto makers and parts suppliers over the past two years were generally geared to get structurally in line with the overall industry," said Charles Moore, a managing director of the turnaround firm Conway MacKenzie & Dunleavy based in Birmingham, Mich.

"Now they are at the point where they have to adjust their costs to remain profitable and create a cushion if there is a down sales year," Moore said. "The cuts are difficult but they are necessary."

Visteon, one of the largest U.S. auto parts makers, confirmed Thursday that it will eliminate another 500 salaried workers in North America and Europe. Those cuts start sometime this month and will end by the middle of 2008, spokeswoman Kimberly Goode said in an interview. The Van Buren Township, Mich., company cut 900 salaried workers last year.

Ford Motor Co. (F) is in the midst of evaluating its 2008 budgets and re- examining its economic and cost-cutting assumptions for the next couple of years, people familiar with Ford's deliberations have said. The auto maker hasn't determined whether it will need to increase its job-cutting plans, but may come to that conclusion soon, according to two Ford managers.

Budgets could be squeezed by an additional 10% to 15% in some departments, these executives said.

GM, meantime, recently announced it will phase out a shift at its Lansing, Mich., plant and reduce production at a truck plant resulting in a total job loss of 2,900.

The continued cuts by the auto makers will result in more bankruptcies next year as smaller suppliers, who can't make worker cuts, seek financial relief, Moore said.

-By Jeff Bennett, Dow Jones Newswires; (248) 204-5542; jeff.bennett@dowjones.com

(Terry Kosdrosky and Kevin Kingsbury contributed to this story.)