DaimlerChrysler Trucks Business to Unveil Reorganization

FRANKFURT June 27, 2003; DaimlerChrysler AG on Monday will outline a strategy to consolidate parts of its far-flung truck operations in a bid to boost profits and leverage its economies of scale. The plan calls for unifying purchasing, development and certain other parts of its Mercedes-Benz and Freightliner divisions, people familiar with the matter said. It will also intensify cooperation and component-sharing with two Asian partners it partly owns -- Mitsubishi Motors Corp.'s Fuso division and the truck unit of Hyundai Motor Co.

The reorganization is the latest reminder of the many challenges facing DaimlerChrysler.

Earlier this month, the company said its Chrysler unit would report a one billion euro ($1.15 billion) second-quarter loss. Mitsubishi's automobile division, which is run by DaimlerChrysler, tripled earnings in the fiscal year ended March 31, but its credit rating has come under scrutiny because it used expensive promotions to boost sales in the U.S. and its European unit has had to be rebuilt from the ground up.

Even the Mercedes luxury car division, DaimlerChrysler's main profit-maker, is showing signs of weakness. In the critical U.S. market, Mercedes' market share has slipped this year from 13.1% in January to 11.7% in May, according to Autodata.

"Mercedes has a strong product line up right now, so you shouldn't see that," said Stephen Girsky an analyst at Morgan Stanley, which has had a "sell" rating on DaimlerChrysler shares for more than a year. "I wouldn't say there's panic [ about DaimlerChrysler], but it's starting to raise eyebrows."

Some analysts have speculated the company might consider selling Chrysler. On Friday, a DaimlerChrysler spokesman said the company views Chrysler's problems as "operational" and won't sell the unit.

Besides producing automobiles, DaimlerChrysler is the world's largest truck maker. Mercedes-Benz light trucks are sold in Europe and South America, while Freightliner's heavy trucks command a big chunk of the North American market. DaimlerChrysler also owns 43% of Fuso and half of the Hyundai truck division.

But size hasn't generated big profits. In 2002, the commercial-vehicles division lost 343 million euros on sales of 28 billion euros. In the first quarter of 2003, it earned 14 million euros on sales of 6.1 billion euros.

Monday, DaimlerChrysler will announce a plan to combine certain groups within Mercedes-Benz and Freightliner while leaving their manufacturing operations separate, people familiar with the matter said. It will also formalize a new steering committee, led by commercial-vehicles chief Eckhard Cordes, that will coordinate sharing of engines, axles and other major components by Mercedes- Benz, Freightliner, Fuso and Hyundai.

A spokesman for the commercial-vehicles division confirmed senior executives are "looking at how to put together this global enterprise." Last fall, Mr. Cordes said cooperation with the Asian truck makers would deliver "enormous synergies."

Synergies were also expected to come from tighter cooperation between Mercedes, Chrysler and Mitsubishi's automobile division, which is run by DaimlerChrysler.

Chrysler, however, underestimated the intensity of the price war among U.S. car makers and will take a charge against second-quarter earnings related to some 500,000 cars sitting in dealer inventories. As part of its effort to clear out the vehicles, the company is pushing employees to get friends and family members to buy new cars.

Chrysler hopes to cut expenses by reducing its work force by 2% through attrition over the next six months and negotiating another round of price reduction from its suppliers.

Mitsubishi's U.S. sales are holding up but is facing a much weaker European market than expected. Stefan Jacoby, who was hired from Volkswagen AG last fall to run Mitsubishi Europe, said the unit would show a profit in 2003 after several years of losses although sales would be flat at about 200,000 cars.

New products like the Outlander sport-utility vehicle and Lancer sport sedan should help turn around Mitsubishi's "boring" image in Europe, but acknowledged the division "is by far not where we want to be."