BREAKING NEWS Chrysler: End of the Line for Some Employees, Models and Production
November 01, 2007

Chrysler announced Thursday morning that it will slash its salaried ranks further, cut production at a number of plants and eliminate four models from its product portfolio.

The moves come as no surprise as such cost cutting is the MO for private equity firms, like Chrysler’s new owner, Cerberus Capital Management. Since taking over only in early August, the new Chrysler management has taken quick and decisive steps to turn the automaker around as the economy turns even further south than anticipated.

No Shock: Deeper Cuts Than Promised

Chrysler Chairman and CEO Bob Nardelli, the former Home Depot chief who was installed by Cerberus to run the automaker on day one of its ownership, had insisted Chrysler would stick to the Recovery and Transformation Plan laid out by former Chrysler CEO Tom LaSorda in February.

Anyone who believed that was naïve. Private equity firms are known for slashing costs quickly to recoup their costs. And Nardelli has a big incentive to do just that; he receives no salary and his compensation depends on the turnaround of the company,

Indeed, the economy, which some experts say is headed for a recession, is accelerating the necessity for more Draconian efforts – and gives Cerberus cover for taking them.

"The market situation has changed dramatically in the eight months since Chrysler established the Recovery and Transformation Plan as its blueprint," said Nardelli said in a statement issued by Chrysler Thursday. "Annual industry volume (U.S. market) then was running at a 17.2 million clip. Now, we expect a seasonally adjusted annual volume for 2007 to be significantly lower and carry over into 2008."

In the same statement, LaSorda was quoted as saying: "We have to move now to adjust the way our company looks and acts to reflect a smaller market. That means a cost base that is right-sized and an appropriate level of plant utilization."

Cut: Four Models

Being eliminated from the product portfolio through 2008 are the Dodge Magnum and the Chrysler Pacifica, Crossfire and PT Cruiser convertible.

More models are at risk for future cuts, including the slow-selling Chrysler Aspen, Dodge Durango and Jeep Commander. For now, the Aspen and Durango will be offered with hybrid powertrains in 2008.Chrysler also introduces the Dodge Journey and Dodge Challenger in 2008.

Cut: Salaried workers

Chrysler will reduce its salaried ranks by 1,000 employees. Its contract workforce will shrink by 37 percent. Chrysler did not say how many contract workers that amounts to.

Cut: Production

In an effort to cut inventories in line with slower sales and not get into the disastrous bloated inventory situation of a year ago, Chrysler will cut production at several of North American assembly and powertrain plants. Shifts will be eliminated at five North American assembly plants which, combined with other actions, will reduce the number of hourly jobs by 8,500 to 10,000 people through 2008.

The cuts are on top of the 13,000 jobs eliminated by the three-year recovery plan announced in February, which has Chrysler being profitable 2009, a goal, Chrysler management said Thursday, remains the same. 

Three of the five plants affected by this action are the result of elimination of third shifts in the first quarter of 2008 in Belvidere, Illinois; Toledo, Ohio, and Brampton, Ontario. LaSorda said third-shift operations at assembly plants usually reflect a high demand after a product is launched.

The Belvidere plant builds the Dodge Caliber, Jeep Patriot and Jeep Compass. Toledo North builds the Jeep Liberty and Dodge Nitro. Brampton builds the Chrysler 300, Dodge Charger and the upcoming Dodge Challenger, of which only 5,000 limited edition versions will be produced in the 2008 model year. The Canadian plant also produces the Dodge Magnum, which will be discontinued.

In addition to dropping third shifts, Chrysler will end some second shifts as well.

Jefferson North (Detroit, Mich.) Assembly Plant will end its second shift in the first quarter 2008. Chrysler said the plant will return to two shifts in first quarter 2010 with the introduction of the next generation of sport-utility vehicles. The addition of a third shift will remain an option, depending on market demand. Jefferson North builds the Jeep Grand Cherokee and Jeep Commander.

The second shift ends at the Sterling Heights (Mich.) Assembly Plant in first quarter 2008 as well. The plant builds the recently introduced Dodge Avenger and Chrysler Sebring sedans and Chrysler Sebring Convertible.

Mack Avenue (Detroit) Engine Plant II will return to a traditional two-shift, two-crew operation in the first quarter 2008 after operating on a three-crew, two-shift, 120-hour-per-week schedule. Mack II builds the 3.7-liter V-6 engine.

Cut: Misc. Costs

Chrysler will eliminate hourly and salaried overtime and reduce “purchased services.”

The End? Unlikely

And if anyone thinks that this is the end of the cuts by Cerberus-owned Chrysler, they are naïve.

The models eliminated were the obvious ones – the low-hanging fruit. More are likely.

Jim Press, Chrysler vice chairman and president recruited from Toyota, said at a recent media roundtable that Chrysler will focus more on models that consumers want with the features they want instead of producing vehicles and forcing them onto dealers who have no buyers for them. 

Press said Chrysler’s three brands would chart their own paths and not overlap with products. He hinted, for instance, that the car-based Jeeps like the Compass were inappropriate for the brand’s rugged image.

Indeed, in the company’s statement issued Thursday, Press was quoted as saying: “These actions reflect our new customer-driven philosophy and allow us to focus our resources on new, more profitable and appealing products. Further, these product actions are all in response to dealer requests."

Also consider Cerberus’ track record of promises: LaSorda remains in charge; Nardelli arrives. The recovery plan is fine as is it just needs to be executed. Now it is going deeper.

"Like all good plans,” Nardelli said in Thursday’s press statement, “ the plan has built-in flexibility that allows us to stay one step ahead of market change. And that is the way to long-term sustained profitability."

He concluded: "I'm confident that we have the right team in place and a business plan that doesn't need to be re-written."

No wonder UAW leaders had trouble getting its recent contract ratified by the rank and file, which it finally did only last week. Workers complained the agreement didn’t provide the plant and product commitments that the General Motors contract contained. Chrysler claims it has committed to spending more than $15 billion on products, plants and engineering during the life of the contract through 2011.
 

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