Layoffs in Store for DaimlerChrysler

Ailing automaker Chrysler will decrease its workforce by 26,000 people by the end of March through voluntary retirements and layoffs.

Executives and management are being offered early-retirement programs and retirement incentives; but for those who actually build the cars, details are still being worked out.

The cuts are part of Stuttgart-based DaimlerChrysler's restructuring plan, which also calls for six manufacturing plants to be idled through 2002, are designed to help the company become profitable.

"These decisions are absolutely necessary to be kept competitive and in fact to survive," Chrysler Group President and Chief Executive Dieter Zetsche said at a news conference. "They must be made as soon as possible to take control of costs and end uncertainty that many people are feeling."

Zetsche added the company's ultimate goal is better customer service. "We are 100 percent focused on the market, on our customers, on our prospects, and we want to serve them better in the future than we could in the past."

But, Craig Cather, president of CSM Worldwide, an automotive forecasting firm in Farmington Hills Mich., says today's action will mean the company will not be as innovative and will offer less choice at the showroom in the not too distant future. "No company can cut 20 percent of its workforce and expect to be able to do the same things they've been doing for a number of years."

Wall Street reacted negatively to the news, sending shares of DaimlerChrysler down $0.95, or nearly 2 percent, to $47.29. That's far below a post-merger high of $101. The combined company is now worth less than Daimler was alone before the union.

Who's Affected?

Chrysler said it expects a large part of the job-cutting — which will involve 19,000 hourly employees and 6,800 salaried workers — to be done through retirement programs, achieved within the framework of existing union contracts.

Nancy Rae, senior vice president at Chrysler, told a news conference that 400-plus white-collar workers who are at least 62 years old and eligible for retirement would be offered an incentive to retire. While the details are still being worked out, Rae said the package would include a cash payment and a car voucher.

An additional 2,000 white-collar workers will be offered early retirement with full benefits.

Senior Vice President John Franciosi, said Chrysler is discussing comparable programs on the hourly side with all union leaderships.

UAW spokesman Paul Krell declined to comment immediately today.

According to Rae, Feb. 28 will be the separation date for the voluntary retirement program. The company will then implement the second phase of the restructuring which includes involuntary layoffs. Employees will be given two weeks' notice and termination will be effective as of March 31.

Chrysler executive Vice President Gary Henson says the company wants to be as fair as possible. "We want to do right by folks, and that's what we're trying to do … minimize at the end of the day the number of people who actually have to be laid off to the street."

Zetsche added that while he couldn't rule out future staffing reductions, he expected this would be the only layoff announcement the company makes. "This is a one time action. Our clear intention is to go for one step which gives us the base for an upward development for the years to come in order to be a successful company again."

Mounting Losses, Disappointments Since Merger

The company has been experiencing residual problems since the merger with Daimler Benz. Chrysler's performance hasn't met DaimlerChrysler's expectations, with sales incentives erasing profits and production of the hot new PT Cruiser falling short of demand. Daimler and Chrysler also have been reluctant to share parts to cut costs, which might change with a new emphasis on saving money.

Cather says DaimlerChrysler wants to stop the hemorrhaging of red ink. "They're in a state of emergency. They're basically buckling down and trying to make sure they remove as many fixed costs off their balance sheet as possible."

In the long run, what matters most is Chrysler's ability to develop and make vehicles that people want to buy, said analyst David Garrity of Dresdner Kleinwort Benson in New York.

He said he was encouraged that the company was leaving its product development budget relatively untouched.

But he said it was shortsighted for the company to cut production the most in Mexico and Canada, where costs are lower, while shielding higher-paying jobs in the United States. The Chrysler-UAW national contract contains safeguards against job cuts.

"You have a company that in some respects had been hamstrung by the UAW agreement, that has limited their ability to reduce costs," Garrity said. Chrysler posted a third-quarter loss of $512 million and has warned that its fourth-quarter loss could more than double that, given the soft U.S. auto market.

Germany's Stuttgarter Zeitung newspaper reported Saturday the Chrysler unit could lose $1.3 billion in the fourth quarter.

DaimlerChrysler has insisted it has no plans to spin off or sell Chrysler, which it bought in 1998 as part of its plan to extend the company's global reach.

Plants slated to be idled include the Toluca transmission plant in Mexico, and assembly plants in Cordoba, Argentina, and Parana, Brazil.

Chrysler also plans to shift production from a Detroit engine plant to two other sites. In Mexico, Chrysler also plans to shift production from its assembly plant in Lago Alberto and close its Toluca engine plant. Production will be scaled back at plants in four states and Canada, including Detroit, Belvidere, Ill.; Toledo, Ohio; Newark, Del.; Brampton, Ontario; and two sites in Windsor, Ontario.

Zetsche said Chrysler will unveil its complete plan to turn around the loss-making division on Feb. 26.

ABCNEWS Radio, The Associated Press and Reuters contributed to this report.