DaimlerChrysler could lay off up to 16% of the workers in its North American truck operations next year due to an expected downturn in demand, the head of the automaker's truck operations said Monday.
Andreas Renschler, a member of DaimlerChrysler's board of management, also said Chrysler Group's Chief Executive Tom LaSorda has the board's backing, as the company's U.S. unit readies a turnaround plan intended to address swollen inventories and a drop in sales of almost 8% this year.
Renschler said the potential for up to 4,000 job cuts in the truck operations would include 800 layoffs that have already been announced and that will take effect in March.
DaimlerChrysler, the world's largest commercial truck maker, employs a total of about 25,300 in its truck operations in the United States, Canada and Mexico.
Despite a projected drop of almost 40 percent in industry-wide demand for heavy trucks next year in North America, Renschler also said he expects the company's U.S.-based Freightliner truck division to remain profitable.
"Our challenge is to manage the cycles and to come through the down cycles while preserving profitability," Renschler told reporters.
Any workers laid off next by the truck operations would be eligible for recall when production volumes return, Renschler said.
The company's truck operations, which include Portland, Oregon-based Freightliner, turned a record profit of $705 million in the third quarter, up from $449 million a year earlier. Those earnings gains were driven in part by stronger demand ahead of U.S. environmental regulations that take effect next year, which are meant to reduce pollutants from diesel engines.
Renschler said industry-wide truck sales are expected to fall in 2007 but then rise again ahead of the introduction of even tighter U.S. emissions standards scheduled to take effect in 2010.
Those new Environmental Protection Agency standards represent a significant additional cost to fleet operators and the schedule of their introduction has been credited with sparking a boom-and-bust cycle for truck sales.
Renschler said he expects demand for heavy-duty trucks in the United States, Canada and Mexico to fall 39% in 2007. Demand for medium-duty trucks will likely slip 25%, with Daimler-Chrysler's sales closely tracking the broad market, he said.
But Renschler said Freightliner was better positioned for the coming downturn after taking steps to improve the flexibility and efficiency of its operations.
The automaker's Detroit Diesel engine unit will begin producing a new heavy-duty truck engine in 2007, which will represent the company's cost-saving move to a single-engine platform for its biggest trucks. The new engine will provide a 5 to 8% increase in fuel economy based on current environmental standards, Renschler said. "If you look to our customers, fuel costs are one of the biggest costs they have to pay," he said.
Chrysler Restructuring Plan
Although growing ranks of shareholders in DaimlerChrysler have called for a spinoff of loss-making Chrysler, Renschler said the board still believes the company is better off retaining the unit as part of a more diversified portfolio.
Chrysler's deepening problems this year have hurt management's credibility and made some analysts question how committed the group was to Chrysler and its current management structure.
Chrysler, which posted a $1.5 billion loss in the third quarter, has tapped executives from its German parent's Mercedes division to work on a restructuring plan, including cutting $1,000 from the cost of each vehicle it makes.
Chrysler started its cost-cutting review in late July with teams of experts reporting to LaSorda and Chief Operating Officer Eric Ridenour. The restructuring plan is expected in the first quarter of next year.
"We are working at the moment on a plan," Renschler said. "We think there is a big chance to go back to a better situation." When asked if DaimlerChrysler's board has confidence in LaSorda, Renschler replied, "Absolutely."