Dieter Zetsche, the DaimlerChrysler chairman, was once called the merger champion. He shocked the auto industry last Wednesday when he declined to rule out selling Chrysler, the Auburn Hills-based unit. On that day, Zetsche announced 13,000 job cuts, including about 5,300 in Michigan. This situation poses a huge question about Chrysler’s future. Is Daimler about to let go of Chrysler?
“Our thinking does not exclude any options. This means all options are on the table,” Zetsche told reporters when asked about the possible selling of Chrysler. German media appeared delighted at the statement.
DaimlerChrysler shares increased by $5.33 or 8.3 percent to a total of $69.78. No further details could be given said Zetsche who spent five years running the Chrysler Group before becoming DaimlerChrysler’s chief last year. In July, during the launch of his “Dr. Z” ads Zetsche said that the two companies should not have merged in 1998. “The merger is not an issue going forward anymore,” he added.
In 2006, Chrysler reported profits and gaining a larger slice in the American market share. However, the company has to deal with growing inventories and a slump in vehicle demand. Along with the announcement of its restructure plan last Wednesday, the company also posted an operating loss amounting to $1.5 billion for 2006.
The turnaround plan, which was previously called Project X, is expected to alleviate Chrysler’s ailing standing in the industry. It is supposed to allow the company to profit by the year 2008. Daimler’s executives expect for a $4.5-billion improvement by 2009 to an operating profit of $3 billion. The said turnaround plan will cut the company’s workforce by 16 percent including 11,000 hourly jobs and 2,000 salaried jobs. The cut in workforce will significantly affect metro Detroit.
Canada operations of the automaker will be slashing 2,000 jobs. However, special retirement programs and termination or buyout packages will only be offered to selected areas of Chrysler. The across-the-board packages offered by General Motors Corp. and the Ford Motor Co. in their respective restructuring plans will not be offered by Chrysler. “Hourly workers should learn the details within three or four weeks and salaried workers in the next business quarter,” the company said.
The Warren Truck Plant, the Chrysler plant that produces Dodge Ram pickups, will lose a shift and about 1,000 workers. An assembly plant in Delaware will lose a shift and will be idled in 2009. A Cleveland parts distribution center will be closed this December. In addition, a shift will also be reduced at the St. Louis South Assembly plant. Chrysler said it hopes to reduce production capacity by 400,000.
Even before Wednesday, the tension is building up in Chrysler plants. “Something had to be done, obviously,” said Matt Davidson, 49, of Clinton Township. He works at the Warren Truck facility. “All in all, we knew it had to happen. It wasn’t a surprise.” Carmen Walker, 39, of Sterling Heights, a first-shift floater on the assembly line at Warren Truck, said people cried when they were told. “It’s sad ’cause it’s all they know.” Many automotive workers are on almost on the same plight. Those working on Volvo S60 parts could be on the same footing as those working on Dodge Ram auto parts.
The company also said it wants to reduce material costs by $1.5 billion over three years and explore the sale of support operations. The restructuring plan is expected to cost the company $1.3 billion. Reduced production, on the other hand, is expected to cost about $300 million.
But Ron Harbour of Harbour Consulting said Zetsche’s comments does not necessarily mean Chrysler is for sale. “He has a duty to not only the board but all of the shareholders to make sure that as they make strategic decisions, that they’ve exhausted all options,” he said. “Don’t jump to the conclusion that… Chrysler is going to be sold.”