Zetsche's biggest gamble unfolds

Zetsche's biggest gamble unfolds

DCX board arrives in Auburn Hills to finalize 11,000 job cuts, strengthen Mercedes tie.

Bill Vlasic / The Detroit News



DaimlerChrysler AG's supervisory board will convene today in Auburn Hills as workers at the Chrysler Group brace for a major restructuring to be announced Wednesday.

At least 10,000 blue-collar jobs and 1,000 salaried positions are expected to be slashed in the dramatic overhaul of Chrysler, which lost a projected $1.2 billion last year.

But despite calls from German investors for the sale of Chrysler, the board is instead expected to support moves to tie the struggling American unit closer to the company's Mercedes-Benz luxury division.

The restructuring plan -- codenamed "Project X" -- is DaimlerChrysler Chief Executive Dieter Zetsche's biggest gamble since taking over the company's top job in early 2006.

People close to the situation said the 20-member supervisory board will begin meeting today, but won't vote until Wednesday morning on the wide-ranging restructuring plan.

The plan, sources said, includes plant closings as well as shift reductions at factories in the United States and Canada. Plants targeted for closure include an assembly plant in Newark, Del., and an engine plant in Detroit.

As head of Chrysler for five years, Zetsche pushed an ambitious growth agenda for the former No. 3 U.S. automaker that was acquired in 1998 by Daimler-Benz AG. But when Chrysler stumbled to a $1.5 billion third-quarter loss last year, German shareholders called for Zetsche to sell or spin it off.

Rather than dump Chrysler, Zetsche hopes to shrink and stabilize its operations, then build the business by developing new vehicles with Mercedes-Benz.

"From now on, it is Zetsche's Chrysler," said Juergen Pieper, chief auto analyst at Metzler Bank in Frankfurt. "The whole thing is his baby."

Zetsche and Chrysler Chief Executive Tom LaSorda will present the restructuring plan to the supervisory board Wednesday for formal approval.

Details of the plan will then be announced by LaSorda, followed by a press briefing in Auburn Hills on DaimlerChrysler's 2006 financial results.

Cutbacks follow GM, Ford

The restructuring, coming on the heels of broad cutbacks at General Motors Corp. and Ford Motor Co., has to be deep enough to satisfy disgruntled German shareholders critical of the strategy to keep Chrysler.

"Their patience is coming to an end," Pieper said. "They'll want to see very clear benchmarks and targets."

The German investment firm DWS renewed its call for a possible spin-off of Chrysler last weekend. DWS fund manager Henning Gebhardt told a German newspaper that excluding a potential sale would be "irresponsible."

But inside DaimlerChrysler, the focus is on fixing Chrysler rather than selling it.

Zetsche, LaSorda and representatives of Mercedes-Benz have been huddling for months on plans to integrate product-development at mass-market Chrysler with the upscale Mercedes brand.

Several joint projects are already in the works, including development of common platforms for small cars and for the Jeep Grand Cherokee and Mercedes M-Class SUVs, according to people familiar with the plan.

Some Mercedes executives have resisted melding product plans with Chrysler, fearing that consumers will perceive a dilution of the German luxury brand.

But U.S. auto analysts said the move is a natural step in the evolution of DaimlerChrysler, the world's fifth-largest automaker. Project X also calls for Chrysler and Mercedes to accelerate efforts to purchase parts together from low-cost producers in Asia.

"If this company is going to stay one company, then more integration is the way to go," said John Casesa of the Casesa Shapiro Group investment firm.

Chrysler created seven teams last fall to tackle specific areas of the restructuring with a goal of cutting costs by $1,000 a vehicle.

'Operational problem'

Sources close to DaimlerChrysler said the supervisory board has put no pressure on Zetsche to sell Chrysler. "They see it as an operational problem, not a structural problem," said one person familiar with the board.

Under German law, the board has 10 members representing shareholders, and 10 others representing labor, including UAW chief Ron Gettelfinger. The shareholder representatives -- primarily corporate executives from the U.S. and Europe -- are led by the board's chairman, retired Deutsche Bank chief Hilmar Kopper.

The UAW's executive committee is expected to be briefed on the Chrysler cuts at a meeting Wednesday at the union's headquarters in Detroit.

How the cuts will be achieved is of intense interest to Chrysler's 60,000 unionized workers in the U.S. and Canada. Many older workers are hoping for buyout packages that provide a financial incentive to retire early.

At Chrysler's two engine plants on Mack Avenue in Detroit, workers wondered Monday what the restructuring means for them.

The Mack I plant, which makes V-6 engines, has seen its work force fall recently from 780 workers to 530. The factory, as well as its sister plant that builds V-8 engines, are candidates for closure.

Terry Ammons, a veteran of 33 years with Chrysler, said a buyout could be attractive for some longtime workers. "We have quite a few people at Mack with 35 years experience," Ammons said. "If there was a package, they would probably take it."

In Newark, Del., UAW Local 1183 President Richard McDonaugh Jr. sent an e-mail to workers Monday telling them not to believe all the rumors. "Everyone's just waiting for Wednesday," said Al Grandell, 49, of Newark, a 31-year Chrysler veteran. "Everybody's bracing for the worst
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