DaimlerChrysler has released its plan to return truck-making subsidiary Freightliner LLC to profitability by 2004 – a plan that will result in a huge reorganization, job cuts, plant closings, and other efforts.
Freightliner, the North American truck subsidiary of DaimlerChrysler’s Commercial Vehicles Division, will undergo a restructuring plan designed to deliver annual savings at an operating level of $850 million by 2004, the company said. The plan should also allow Freightliner, which will report a loss in 2001, to return to breakeven toward the end of 2002.
The implementation of the turnaround plan will result in one-time charges of around $330 million, to be taken in the fourth quarter of this year, said DaimlerChrysler, reflecting separation payments and other costs related to decisions taken to exit current activities.
A key part of the plan will be to cut material expenditures by up to 10%, rising to $370 million annual savings in 2004. DaimlerChrysler said this would be accomplished through design changes to Freightliner’s trucks, the reduction of parts proliferation and a closer working relationship with suppliers to reduce costs.
DaimlerChrysler will also close several Freightliner-owned plants, including its Woodstock, Ontario, school bus assembly plant in the fourth quarter of 2001 and its Kelowna, BC, truck assembly plant in the third quarter of 2002. Those closings will result in 1,600 layoffs of hourly workers, the company said.
DaimlerChrysler also wants to close Freightliner’s parts manufacturing plant in Portland, OR, by mid 2002, but that depends on pending discussions with the local unions. DaimlerChrysler expects those plant closings, along with “efficiency improvements” at Freightliner’s remaining truck plants to produce overall cost savings of $120 million annually – a 15% reduction in production costs.
Freightliner will also reduce its salaried workforce by 1,100 employees or 25%, which should help reduce overhead costs by $170 million annually. The company is also cutting 5% in salaries and wages for both its salaried and hourly employees, as well as making changes in health and welfare benefits. Those changes are effective January 6, 2002. Overall, once those cuts are imposed, Freightliner’s workforce will have dropped 47% in two years – reaching 11,700 workers, compared to 25,000 in 1999.
DaimlerChrysler is also turning away from Freightliner’s long-held strategy of gaining market share in North America. It said Freightliner will now focus on securing profitable business rather than accumulating market share. That will require more stringent criteria to new truck pricing and residual commitments. Freightliner and its other truck brands, Sterling and Western Star, will also more proactively pursue vocational truck markets, said DaimlerChrysler.
DaimlerChrysler has predicated the success of this turnaround plan on a number of market conditions. First, it predicts annual market demand for Class 8 trucks will hover near 175,000 and around 160,000 units for Class 6 and 7 trucks in the United States, Canada, and Mexico from 2002 through 2004. Though DaimlerChrysler wants to keep reducing Freightliner’s used truck inventory levels, it expects the high inflow of used trucks stemming from the elevated retail sales of 1998 to 2000 to continue.
DaimlerChrysler also said it is rearranging Freightliner’s executive staff. The current CFO at Freightliner, Udo Schnell, will become CEO of Mercedes-Benz Lenkungen GmbH, a steering gear subsidiary of DaimlerChrysler. A search for a new CFO at Freightliner is underway.