A quarter of the workforce at Grundig, one of the best-known names in consumer electronics, is being made redundant as Philips, the Dutch electronics giant, forces its troublesome subsidiary to stand on its own feet. From the end of this year Philips will no longer automatically reimburse Grundig's losses.
A spokesman for Philips said the move would give Grundig "the same status as Philips' other subsidiaries".
The job losses, affecting 3,000 employees out of a workforce of 11,600, come at a bad time for the German economy, which is dangerously on the verge of drifting back into recession. Some 2,200 of the job cuts are in Germany, which is starting to suffer badly from uncompetitive labour rates compared with the rest of Europe.
Grundig said it was confident about its prospects despite being forced to stand alone. A spokesman said that although the company would make another loss this year, it would go into 1997 "without the burdens" of previous years' losses.
Its current restructuring and job cuts meant it would be able to achieve better results, he added.
Peter van der Wal, chairman of Grundig, said the restructuring was made necessary by "the ever-decreasing market in classic consumer electronics, the currency-related fall in prices on exports and the high costs at German production centres".
Costs of the reorganisation at Grundig are high. The company, which lost DM127m (pounds 56m) in 1994, said the redundancies and subsequent reorganisation bill would amount to DM70m. The size of the loss for 1995 will not be divulged until next month.
The shake-up at Grundig has been on the cards for some time, although the company's problems have featured low down on Philips' lengthy list of priorities in the last couple of years. Philips will incur an extraordinary charge of 300m guilders (pounds 118m) for the remedial action at Grundig.
Last year saw Philips bite the bullet and abandon the low profit margins of the extremely competitive personal computer market. At the same time the company slashed 20 per cent from the prices in its consumer electronics catalogue.
Those two moves led to 5,000 job losses, which themselves were part of a wider restructuring that involved a total of 15,000 redundancies worldwide. The financial cost of the exercise ran to 1.2bn guilders.
Philips is now concentrating on high value-added products, where profit margins are more stable.