Chrysler crisis

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxxxxxx>]

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

January 30, 2001


BY JEFFREY MCCRACKEN
DETROIT FREE PRESS BUSINESS WRITER



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
mountain.


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
situation."


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
released.


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.