Chrysler crisis

Charles Brown CharlesB at
Tue Jan 30 08:39:41 MST 2001

A screeching halt: DC slams on brakes after strong 5-year run

January 30, 2001


That loud sound coming from Auburn Hills on Monday morning was the auto industry's
hard landing.

With the announcement Monday that it is eliminating 26,000 jobs or 20 percent of the
workforce at its Chrysler Group, DaimlerChrysler AG signaled loud and clear the
industry's 5-year run of record sales and surging profits is over.

The industry appears to be lurching downward, faster than anyone anticipated. The
Chrysler Group's announcement was the eighth-largest one-day job slashing in the last
decade. A 1991 move by General Motors Corp. to cut 74,000 jobs was the largest.

"We've all got two cars, a new home," said Ken Lewenza, president of Canadian Auto
Workers Local 444 in Windsor, where two plants will be affected. About 5,200 Canadian
workers are facing the loss of their jobs.

"That's why I think this is going to be painful for our members -- because it came on
so fast. It's not like the late '70s and '80s, where it seemed like we were dying a
slow death."

The impact of this slowdown -- foreshadowed by late-summer incentive wars,
lower-than-expected earnings in the third quarter, plant idlings in November and
December and GM's early-December announcement that it will kill its Oldsmobile
division and eliminate 6,600 white-collar jobs company-wide -- will be far-reaching.

The job and production cuts will hurt not only Chrysler employees, but also the
automaker's 900 parts suppliers and their employees, who face layoffs because of
reduced volumes. And it will trickle down to all the businesses and charities that
have benefited from the auto-driven economic boom in southeast Michigan.

One thing many are wondering about with Monday's announcement: Is Chrysler once again
playing the role of the industry's canary in the coal mine, the automaker that
traditionally has led the U.S. auto industry into a downturn?

According to Chrysler officials, the Chrysler Group's expected $1.75-billion loss the
second half of 2000 (results are expected in late February) is symbolic of the
industry's overall malaise. But one Ford executive, at least, begs to differ.

"Hey, please don't put us in the same toilet bowl as everyone else," Ford Vice
President of Public Affairs Jason Vines told the Free Press recently. "We think we're
going to have a great year. We're looking forward to it."

The truth, say experts, is a little of both.

"To some extent the whole industry is deteriorating, but the problems are even more
severe at Chrysler. It's really amazing how bad and how fast things got there," said
David Cole, an industry analyst for more than 30 years. "These downturns are never
pretty, and right now the industry is as unstable as I've seen."

Cole and other auto experts point to increased competition from foreign automakers and
falling new-vehicle prices as serious threats to Detroit's automakers.

Still, they are surprised at how quickly the industry fell from the top of the

Five years of increased sales, including last year's all-time record of 17.4 million
vehicles, camouflaged a lot of weaknesses at the domestic automakers.

Without U.S. sales of high-profit vehicles to protect them, U.S. automakers' steadily
eroding market share is glaringly apparent.

"The U.S. automakers have been sheltered these last few years by record volumes and
high profits on their trucks. Now the volume is going away, and foreign automakers
like Honda and Toyota are seizing the truck market. What worries us with Ford and GM
is that they aren't making money outside North America, and now that market is
slipping. They can't go elsewhere for their profits," said Scott Sprinzen, an auto
analyst for Standard & Poor's Corp., a Wall Street credit-ratings agency.

Cole agreed: "There are still too many manufacturers and too much capacity. In the
past they could cover for this with higher prices, but people won't pay higher prices
anymore. To me, the whole structure is unstable right now."

Buzz Hargrove, president of the Canadian Auto Workers, said in a news conference
Monday the cuts are a shock to his workers, who heard nothing but praise and optimism
from DaimlerChrysler Chairman Juergen Schrempp at a meeting in August and then in
October with former Chief Executive Officer James Holden.

"There was no way we could have recognized this would have happened," Hargrove said.
"This is a tragic situation for Chrysler workers who have no control over their

About 5,200 CAW members will lose their jobs by the end of next year.

Reorganization expected

The announcement of massive job layoffs at the Chrysler Group had been expected since
early December, when new Chrysler Chief Executive Dieter Zetsche told reporters of a
coming reorganization plan.

The numbers, revealed Monday in a news conference, were larger than the 15,000 to
20,000 expected.

The cuts include:

About 19,000 hourly workers, the majority of them in the United States and Canada. The
number of blue-collar layoffs will depend on how many of the 23,700 workers eligible
for early retirement take the company's buyout packages. Most of the company's 3,000
first-year hourly workers will lose their jobs.

Six plants. Five other plants will lose a production line, and two more will reduce
line speeds. The moves, to take place over the next two years, will cut the Chrysler
Group's vehicle production capacity by 15 percent.

About 6,800 salaried workers, including 1,800 contract workers. The company will offer
early retirement to about 2,400 salaried workers. The rest of the white-collar cuts
will come through layoffs or voluntary departures.

The company expects to eliminate 75 percent -- or about 19,500 of the jobs -- by the
end of the year.

Zetsche's goal is to complete salaried workforce cuts by March 31, largely through
early retirements.

Zetsche came to the U.S. arm of DaimlerChrysler AG in mid-November after the ouster of
Holden and the announcement of Chrysler Group's $512-million loss in the third quarter
of 2000. The automaker is expected to lose $1.25 billion in the fourth quarter, though
the exact figures will not be released until Feb. 26.

At that date, more details of the company's restructuring plan are expected to be

Zetsche said Monday the job cuts are unavoidable, forced by the combination of
Chrysler's poor performance and a declining auto market.

"The market out there is deteriorating, and our company performance, even more so. The
markets are shrinking, competition is brutal, we are under pressure from imports and
an incentive war on," said Zetsche.

Zetsche said the company's previous business plans were based on "aggressive growth
and higher prices," neither of which came true. Chrysler's share of the market shrunk
rapidly in 2000 and lower pricing continued as the rule in the industry.

"At our volumes, it doesn't take much of a change from what had been expected to
change the parameters from a company making money to one losing money," said Zetsche.

He acknowledged that some job-cutting had been envisioned by Holden and other former
Chrysler executives but said Monday's announcement is much more drastic than what had
been in the works.

"We are going far beyond what had been planned up to this point," emphasized Wolfgang
Bernhard, Chrysler's chief operating officer.

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