Daimler may dump ailing Chrysler as 13,000 more jobs are cut

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The Independent Online

DaimlerChrysler raised the prospect yesterday of selling its loss-making US division and so unwinding the 1998 merger which created the world's fifth-biggest car maker.

The move came as the German-US automotive group announced 13,000 job losses and the closure of a number of North American plants in an attempt to return Chrysler to profitability by next year.

It emerged last night that General Motors is in talks with Chrysler about an alliance that may result in the companies designing models together. Dieter Zetsche, the DaimlerChrysler chairman, had earlier refused to comment on speculation that Chrysler may be sold to GM. Analysts also speculated about a tie-up with Nissan-Renault.

Announcing the latest restructuring for its ailing American car business, Mr Zetsche said it was looking at "further strategic options" for Chrysler, adding that "all options" were on the table as far as the future of the business was concerned.

Should the $37bn merger of Daimler-Benz and Chrysler be unravelled, then it would amount to a remarkable admission of corporate failure. At the time of the deal eight years ago, the two co-chairmen of the newly created company, Jurgen Schrempp and Bob Eaton, said it provided the platform to create the world's biggest car maker. Since then, the two halves of the company have plunged from one crisis to another, axing tens of thousands of jobs.

The restructuring unveiled yesterday comes on top of 40,000 job cuts and 16 plant closures or sales since 2001. This latest plan is designed to produce ¤3.5bn of cost savings by 2009 and will reduce Chrysler's capacity in North America by 400,000 units.

Chrysler plunged to a ¤1.1bn loss last year after a rise in petrol prices and a dramatic shift in the US market towards smaller, more fuel-efficient cars hit sales of its minivans, pick-up trucks and sports utility vehicles. Some 90 per cent of Chrysler's sales are in North America.

Allied to the cost-saving plan, Mr Zetsche pledged a $3bn investment at Chrysler in new engines, transmissions and axles to produce a more fuel-efficient model line-up as the company reduced its focus on big and heavy pick-ups. The savage cost reductions were greater than the market had expected and DaimlerChrysler shares rose 5 per cent to their highest level since 2002.

But most attention was on the admission that Chrysler could be disposed of, rather than how its fortunes might be restored under the current ownership. Mr Zetsche made it clear that in examining strategic partners for Chrysler, it was looking beyond its existing alliances with other car makers. These include a tie-up with Volkswagen to build minivans in North America and a recently announced venture with China's Chery Automobile Company to make a small car for sale in North America and Europe.

Some analysts expressed scepticism about the group's ability to walk away from Chrysler, given its heavily-unionised workforce and large pension and healthcare liabilities.

Under the leadership of Mr Zetsche, Chrysler staged a recovery and made an operating profit of ¤1.5bn in 2005. Its return to heavy losses last year after a 5 per cent fall in sales did not prevent DaimlerChrysler increasing overall operating profits to ¤5.5bn thanks to the strength of the Mercedes brand.

Unhappy union

May 1998 Daimler-Benz and Chrysler announce $37bn "merger of equals" to create world's fifth-biggest car maker

2000 Jurgen Schrempp, architect of merger, takes sole charge of company as his co-chairman Bob Eaton retires. Head of Chrysler division, James Holden, replaced by Dieter Zetsche.

2001 DaimlerChrysler makes first-quarter loss of €4.3bn (biggest in German corporate history) after announcing 26,000 job losses at ailing US subsidiary

2002 Veteran US investor Kirk Kerkorian sues DaimlerChrysler and Schrempp for $8bn claiming 1998 merger of equals was a "lie"

2005 Zetsche takes over as DaimlerChrysler chairman from Schrempp. Cuts 8,500 jobs

February 2007 Zetsche announces 13,000 job cuts at Chrysler in bid to return to profitability by 2008