Sept. 27 (Bloomberg) — Mercedes-Benz chief Dieter Zetsche, after four weeks in the post, intends to eliminate at least 5,000 jobs to help revive profit at the DaimlerChrysler AG luxury car division, people familiar with the plan said.
The supervisory board of DaimlerChrysler, the fifth-largest automaker, is scheduled to announce the job cuts tomorrow after a two-day board meeting in Auburn Hills, Michigan, said company officials who didn’t want to be identified. Zetsche, 52, left Chrysler on Sept. 1 for a four-month stint at Mercedes before he takes over as chief executive officer of the parent company.
DaimlerChrysler faces slumping demand for the Mercedes-Benz E- Class sedan, the model that contributes the most to profit. Mercedes reported its first quarterly loss in 13 years in the first quarter, and profit fell 98 percent in the second. The company is also spending 1.2 billion euros ($1.45 billion) to reorganize its Smart small-car unit.
“The cost discipline in the recent past wasn’t strict enough,” said Michael Raab, an auto analyst with Sal Oppenheim in Frankfurt. He estimates the cuts will cost DaimlerChrysler 150 million to 250 million euros and save 200 million to 250 million euros annually in reduced labor costs.
DaimlerChrysler spokesman Thomas Froehlich declined to comment on the job cuts or board meeting. Mercedes had 106,000 employees worldwide at the end of last year, according to DaimlerChrysler.
Zetsche eliminated 40,000 jobs from 2000 to 2004 to help Chrysler return to profit in the U.S. He will take over at Stuttgart, Germany-based DaimlerChrysler when CEO Juergen Schrempp retires. In the first six months of this year, Chrysler had an operating profit of $963 million, and Mercedes reported a $1.1 billion loss.
Cuts at Home
DaimlerChrysler joins Volkswagen AG, Siemens AG and other German companies in cutting jobs in their home market. Western German manufacturers’ wage costs are the world’s second-highest after Denmark, weighing on economic growth, according to the IW economic institute in Cologne, Germany. Unemployment in Germany rose to a record 12 percent in March.
General Motors Corp., the world’s biggest automaker, is in the process of cutting 12,000 jobs in Europe, including 10,000 in Germany, to reduce its labor costs and be more competitive with Asian automakers such as Toyota Motor Corp., which are gaining European sales.
Fourteen months ago, DaimlerChrysler reached an agreement with Mercedes workers in Germany to increase working hours, slow pay increases and save the carmaker about 500 million euros annually. In exchange, DaimlerChrysler agreed to not fire workers.
5,000 or More
The board is expected to approve at least 5,000 jobs cuts, and the number may be higher based on recent negotiations with the union, the people said. The Frankfurter Allgemeine Sonntagszeitung on Sept. 24 said DaimlerChrysler was close to an agreement with unions to cut 5,000 jobs. The newspaper didn’t say where it obtained the information.
Mercedes in the first quarter was overtaken by Munich-based Bayerische Motoren Werke AG as the world’s No. 1 maker of luxury cars. Zetsche is replacing Eckhard Cordes at Mercedes. Cordes had announced a plan to lower costs and improve the quality of Mercedes vehicles before resigning after Zetsche was picked to succeed Schrempp. Zetsche said earlier this month Mercedes intends to regain leadership in luxury car sales.
Mercedes on March 31 announced its largest-ever recall, to fix electrical and brake failures in 1.3 million cars. In this year’s annual survey of quality by J.D. Power & Associates of Westlake Village, California, Mercedes rose five spots to sixth best. It still ranks behind BMW and Toyota’s Lexus luxury division.
Stuttgart, Germany-based DaimlerChrysler’s U.S. shares rose $2.11 to $52.91 yesterday in New York Stock Exchange composite trading. The shares have risen 20 percent from July 27, the day before it was announced Zetsche would take over from Schrempp. The German shares rose 4.1 percent to 43.72 euros in Frankfurt yesterday. The stock has gained 24 percent this year.
Job losses were a key point in the Sept. 18 German election- stalemate that left both Angela Merkel, 51, leader of the Christian Democratic Union, and Chancellor Gerhard Schroeder claiming the right to lead the next government. Merkel ran in part on a platform of trying to increase jobs by cutting German labor costs to employers.
Volkswagen, Europe’s largest carmaker, said Sept. 5 that it needed to reduce its western German workforce of 103,000 by several thousand employees. The Wolfsburg, Germany-based company, bound by a labor agreement guaranteeing workers jobs through 2011, is now offering severance and early retirement packages in an effort to persuade employees to voluntarily leave the company.
Volkswagen’s western German workers agreed to a wage freeze through 2011 that will eventually be worth 2 billion euros annually in exchange for the job guarantees. Chief Executive Bernd Pischetsrieder said this month the carmaker has already realized 1 billion euros of those savings, and that Volkswagen must speed up efforts to eliminate the rest.
Audi AG, Volkswagen’s luxury-car division, reached a similar deal with 45,000 German workers in April that will decrease labor costs by at least 130 million euros annually. Chief Executive Martin Winterkorn said in an interview Aug. 23 that the carmaker is seeking additional concessions from workers that would allow the Audi more flexibility on scheduling.
Siemens, Europe’s largest engineering company, said Sept. 19 it will eliminate 2,400 jobs at the German computer-services division and replace the unit’s head as part of a plan to weed out unprofitable businesses and revive the stock.
Since 1992, Siemens’s local workforce has shrunk by 90,000, while it has added 100,000 employees abroad. About 164,000 Siemens workers are employed in Germany, out of a global workforce of about 430,000. The last time Siemens made major job cuts was in July 2003, when it said it would shed 2,300 jobs at the wireless unit, adding to about 35,000 job losses in four years.
To contact the reporters on this story:
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Chad Thomas in Berlin at email@example.com.