Just What DC Needs: Freightliner's $330 Million Restructuring

On Friday DaimlerChrysler announced a $330-million restructuring of its Freightliner truck division that includes an 18-percent cut in jobs.

Company officials aknowledged that the move comes as the U.S. market for commercial vehicles suffers its worst sales slump in 20 years, with no signs of recovery in the immediate future." Freightliner is also being hurt by a deal it made years ago to buy back used trucks, and the used truck market has gone the way of the DoDo Bird.

Freightliner's North American plants will lay off 1,100 salaried employees and 1,600 hourly employees by the end of next year. The moves, will cut Freightliner's production capacity by 15 percent. It will close Canadian assembly plants in Woodstock, Ontario, and Kelowna, British Columbia and plans to close a Portland, Ore., parts manufacturing plant.

DaimlerChrysler expects that Freightliner will break-even by next year, with annual cost savings of $850 million by 2004. The $330-million cost will be taken as a special charge in the fourth quarter.

Reuters reported that the unit is the latest headache for the auto giant, which is already grappling with a $4-billion overhaul of Auburn Hills-based Chrysler Group,including 26,000 previously announced job cuts worldwide aimed at returning it to profit in 2002. DaimlerChrysler also is revamping Mitsubishi Motors Corp., in which it holds a controlling 34-percent stake.

Last month, the company said its 2001 profit targets, including a group-adjusted operating profit goal of 1.2 billion to 1.7 billion euros ($1.1 billion to $1.6 billion) were at risk following the hijacked plane attacks on the United States. The company reports its third-quarter earnings Oct. 23.

DaimlerChrysler said Freightliner would report a loss this year, break even in 2002, post a small operating profit in 2003 and then rise to "sustainable returns above the cost of capital in 2004." The company has declined to quantify Freightliner's losses.

Himanshu Patel, an analyst at JP Morgan in London, said DaimlerChrysler appeared to be using fairly conservative estimates for market growth over the next few years. "It seems like they are cleaning out their house and addressing the main problems," he said, adding that the break-even target "is realistic." .