DaimlerChrysler Announces Freightliner Financial Plan

DaimlerChrysler has announced a four-point plan to return its Freightliner subsidiary to profitability. The plan envisions saving $370 million in materials, $120 million on production costs, reducing overhead by $170 million, and improving operations by $190 million. Announced in Stuttgart, Germany, the plan is designed to return the company to profitability and save a total of $850 million by 2004. Freightliner should begin to break even by the end of 2002, show a small profit in 2003, and reach sustainable profit in 2004. A one-time charge of $330 million will be taken during the remainder of 2001.

Material costs will be slashed by design changes, reduction in parts proliferation, and closer relations with suppliers. These reductions will be in addition to savings already achieved with suppliers in 2001. Additional cost savings will result from cutting from six chassis platforms in medium and heavy trucks to only three platforms in the next two years. Closing the school bus assembly plant in Woodstock, Ontario, and the heavy truck plant in Kelowna, British Columbia, will cut costs and help align production with demand. The bus plant will close in 2001, and the Western Star plant in Kelowna will close late in 2002. In addition, Freightliner will close its parts manufacturing plant in Portland, Oregon., pending discussions with union representatives. The workforce in the remaining truck plants will be cut by an additional 1,600 hourly employees.

Salaried workers will be cut as well with an additional 1,100 employees, 25% of the total, will be laid off. Effective January 6, 2002, pay for all workers will be cut 5%. Health and welfare benefits will be reduced as well. Total layoffs will reach 11,700 employees, a reduction of 47% from peak employment of 25,000 in 1999.

Freightliner’s new business model will focus on profitability rather than market share. As a result, the company will apply stringent criteria to new truck pricing and to commitments for used truck residual value. Used truck operations will be streamlined.

The plan is based on demand for roughly 175,000 Class 8 vehicles per year and 160,000 Class 6 and Class 7 vehicles in North America. The company foresees a continuing high volume of used trucks as a result of new truck sales from 1998 to 2000. Value of these used trucks will be monitored carefully, Freightliner says.

With regard to personnel, Dr Udo Schnell, Freightliner chief financial officer, will be reassigned as chief executive officer of Mercedes-Benz Lenkungen GmbH, a steering gear subsidiary based in Duesseldorf, Germany.