DaimlerChrysler poised to unveil US trucks revamp

FRANKFURT -DaimlerChrysler said on Wednesday it would present restructuring plans for its loss-making U.S. truck unit Freightliner in the next few days in an attempt to revive its latest troubled business area.

"We will make a statement about the restructuring measures (at Freightliner) in the coming days," said a spokesman for DaimlerChrysler. He declined to be more specific.

Analysts expect a downsizing of the unit to boost its profitability and say job cuts and plant closures are likely.

Freightliner is the most recent headache for the auto giant following losses at Chrysler and partner Mitsubishi. The truckmaker's troubles stem from the costs of a guaranteed buyback policy aimed at boosting market share, which became expensive during a deep slump in the U.S. truck market.

"I don't see how job cuts and plant closures will be avoided," said one Germany-based analyst. He estimated cuts of around 15-20 percent.

"The ambition for volume has hurt profitability," he added.

Oon Wednesday, DaimlerChrysler shares were up 3.69 percent at 37.90 euros. The share is trading at just over a third of its value in May 1998, when Daimler Benz and Chrysler announced their merger.

Last month the group said its 2001 profit targets, including a group adjusted operating profit goal of between 1.2 and 1.7 billion euros ($1.1 and $1.6 billion), were at risk because of slumping demand for cars following the hijacked plane attacks on the U.S.

That goal was one of the "milestone targets" set out in February in a $4 billion overhaul package aimed at returning its U.S. Chrysler unit to profit in 2002. DaimlerChrysler also faces costs related to a revamp of Japanese partner Mitsubishi Motors Corp .

Freightliner's woes came to light at the end of the first quarter, when its losses dragged DaimlerChrysler's whole truck division into the red. The group has said the division will post a profit for the year.

It has declined to quantify the losses at Freightliner, but many analysts believe the unit could post a loss of some $1 billion this year.

"I think we will see a downsizing of the company to a more profitable level, and that would be sensible," said Himanshu Patel, a JP Morgan analyst who rates DaimlerChrysler a "buy".

RETURNING TO PROFIT

DaimlerChrysler has said it will consider all options to return Freightliner to profit.

In June Freightliner had said it would cut about seven percent of its workforce. Currently, Freightliner has 14,700 employees and 10 plants. In 2000, it sold 136,100 trucks.

Freightliner may also try to renegotiate some of the contracts with customers, which oblige it to repurchase used trucks at fixed prices that are now inflated due to a collapse in the market for heavy trucks.

Analysts said that Freightliner had a 36 percent share of the North American heavy truck market in 2000 and that it might shed its expensive marketing policy, allowing that market share to slip to around 30 percent.

"Their problem is having excess market share, which is not profitable," JP Morgan's Patel said.

He thought it unlikely that Freightliner would be back in the black before the end of 2002 and that the package could cost around $1 billion.

"Restructuring Freightliner might take longer than Chrysler in terms of results, because it's less about cost structure - there's less low-hanging fruit," said Patel.

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